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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.

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  • 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.