Answer:
If the dollar/rupiah exchange rate is fixed and Indonesian prices are rising faster than U.S. prices, then the Indonesian rupiah is depreciating in real terms.
Let's break it down:
Fixed Exchange Rate: When the exchange rate between two currencies is fixed, it means that the value of one currency in terms of the other is set and doesn't change. In this case, the dollar/rupiah rate is not changing.
Rising Indonesian Prices: If prices in Indonesia are rising faster than prices in the U.S., it indicates that the inflation rate in Indonesia is higher. This means that the purchasing power of the Indonesian rupiah is decreasing because you can buy fewer goods and services with the same amount of rupiah due to the higher inflation.
Real Depreciation: When a currency's real value decreases over time due to higher inflation compared to another currency, it's called real depreciation. Even though the nominal exchange rate remains fixed (dollar/rupiah rate), the rupiah's purchasing power is eroded due to the higher inflation in Indonesia. In other words, you need more rupiah to buy the same amount of goods or services that you could buy with fewer rupiah before.
So, in this scenario, the Indonesian rupiah is depreciating in real terms even though the nominal exchange rate is fixed
Step-by-step explanation: