Question

Consider an identical basket of goods in both the U.S. and Taiwan. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with Taiwan falls?

Answer 1

Answer: The price of the basket of goods falls in the U.S. and rises in Taiwan.

Explanation: Exchange rate is the price of a given currency when bought with another another,it is also known as the value of a currency when compared with others such as the United States Dollar. Various factors have been understood to be the cause of the rise and fall of Currency. This will include the value of a country's export and its balance of trade etc

When the price of the basket of goods falls in the United States and rises in Taiwan it will certainly cause the U.S. real exchange rate with TAIWAN to fall.

Answer 2

Answer:The U.S real exchange rate with Taiwan falls

Explanation:

The nominal exchange rate is the price of one currency in terms of another.for trade to take place, it must be possible to convert one currency into another at a generally accepted exchange rate. The exchange rate relates to the rate of exchange between paper currencies. While the real exchange rate is the actual quantity of goods which can be exchanged for goods in the other country.it can be calculated as

Real exchange rate = nominal exchange rate × domestic price / foreign price

The exchange rate is a major factor which influence the the trade relations between two countries. In the sense that, when a country's currency is more expensive their goods will also be very expensive. A strong currency is not always good for trade, when a currency is weak such a country can export more of their goods abroad easily, but when a currency is strong this will lead to high prices of their good at home which will discourage foreigners from buying in the home country. While the relatively cheaper prices abroad will encourage people to buy foreign goods. Therefore the supply of home currency will fall which tend to correct the effect of high domestic prices. In this case, foreigners will be able to get more domestic currency for each unit of their market, which offset the effect of high prices there.