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Between last year and this year, the CPI in Blueland rose from 100 to 108 and...

Between last year and this year, the CPI in Blueland rose from 100 to 108 and the CPI in Redland rose from 100 to 105. Blueland’s currency unit, the blue, was worth $1 last year and is worth 80 cents this year. Redland’s currency unit, the red, was worth 40 cents last year and is worth 32 cents this year. Find the percentage change from last year to this year in Blueland’s nominal exchange rate with Redland and in Blueland’s real exchange rate with Redland. (Treat Blueland as the home country.) Relative to Redland, do you expect Blueland’s exports to be helped or hurt by these changes in exchange rates?

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Answer #1

A.

B.

Therefore, Blueland's real exchange rate rises by 2.8%

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