Question

In the long run, with a floating exchange rate, changes in _____ will have an impact on the real exchange rate.

a. the U.S. money supply only
b. the foreign country's money supply only
c. both the U.S. money supply and the foreign country's money supply
d. neither the U.S. money supply nor the foreign country's money supply

Answer 1

Answer:

d. neither the U.S. money supply nor the foreign country's money supply

Explanation:

The main advantage of a floating exchange rate is that the real exchange rate is always balanced. This happens because the balance of payments is also balanced. E.g. if net exports start to increase, domestic currency will appreciate, resulting in higher domestic prices, which will balance the real exchange rate.