Question

Choose the statement that is incorrect.

A. In the long​ run, a rise in the foreign price level brings dollar appreciation and a rise in the U.S. price level brings dollar depreciation.
B. In the long​ run, a change in the nominal exchange rate brings an equivalent change in the real exchange rate.
C. In the long​ run, the nominal exchange rate is a monetary phenomenon.
D. In the long​ run, the nominal exchange rate is determined by the quantities of money in two countries.

Answer 1

B. In the long​ run, a change in the nominal exchange rate brings an equivalent change in the real exchange rate.

Step-by-step explanation:

As we know that in the short run there is a decline in the nominal exchange that results in a decrease of real exchange rate due to which there is a reduction of the import and the export is risen.

But in the case of the long run, if there is a change in the nominal exchange rate so the real exchange rate would remain the same

This results that if there is a change in the nominal exchange rate so it would not bring the equal change in the real exchange rate

Hence, option B is incorrect