If the US nominal exchange rate increases and prices rise faster in the US than abroad, the US currency will nominally appreciate. This means fewer US dollars are needed to purchase a unit of foreign currency. As a result, imports to the US will become costlier while exports out of the US will become more attractive.

1. What happens to the nominal exchange rate when the US's rate increases and prices rise faster in
the US than abroad?
Solution
The nominal exchange rate E is defined as the number of units of the domestic currency that can
purchase a unit of a given foreign currency. A decrease in this variable is termed nominal
appreciation of the currency. (Under the fixed exchange rate regime, a downward adjustment of
the rate E is termed revaluation.
If US currency appreciated imports to US become costlier and exports out of US become
attarctive.