Macroeconomics, 2nd Edition by Pearson

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MACROECONOMICS

As you would have noticed, economists focus on real variables. When we

were examining how to measure income, for instance, we wanted a measure

that corrects for changes in the general level of prices—real incomes rather

than nominal ones. In a similar vein, a distinction is made between the nominal

exchange rate and the real exchange rate. It is the change in the real exchange

rate rather than in the nominal exchange rate that affects the exports and

imports of a nation—a distinction that is often overlooked, mistakenly.

Let us take an example. Suppose you are planning to purchase furniture

for your home, and one ...