Answer to Question #82727 in Macroeconomics for DD

Question

1. How is the Real exchange rate of seven years calculated?
2. How is the nominal and real effective exchange rate index calculated?
3. how is the nominal exchange rate of seven years calculated?

Answer 1

1. The Real exchange rate of seven years is nominal exchange rate multiplied by the change in price level.

2. Effective exchange rate of currency j = Normalized exchange rate of currency j against the US dollar/Value of the benchmark currency basket against US dollar

3. The nominal exchange rate is defined as the number of units of the domestic currency that can purchase a unit of a given foreign currency.