Real vs Nominal Exchange Rate

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  What is the difference between real variables and nominal variables? Are these variables affected by the quantity of money? If so, how? 2. What is the difference between the real exchange rate and the nominal exchange rate?

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  But what really matters is what happens to the real exchange rate. The best forecast of the real rate ten years out is the current spot rate. Over the long run, PPP tends to hold, leading to a relatively constant real exchange rate.

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  See attached file The solution calculates inflation, real GDP growth rate, and SHORT TERM nominal interest rates, given Yf (full employment) growth rate for the real GDP and the real SHORT TERM interest rate, based on quantity equation of exchange (with

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  real exchange rate = nominal exchange rate x (Mexican price / US Price ) = 0.010 =0.07 * (1/7) What is the end of year real exchange rate? A) 0.013.    B) 0.010.    C) 0.021.