Economic Awareness - Sectors of Indian Economy
In the context of exchange rates, what does the term 'real effective exchange rate' (REER) signify?
In the context of exchange rates, what does the term 'real effective exchange rate' (REER) signify?
medium Q8 of 15
Step-by-Step Solution
Step 1: Define REER
REER is the nominal exchange rate adjusted for relative price or cost differences and weighted by trade shares.Step 2: Purpose of REER
It measures the competitiveness of a country's currency against a basket of currencies considering inflation.Final Answer:
Nominal exchange rate adjusted for inflation differentials and trade weights → Option DQuick Check:
REER = nominal rate adjusted for inflation and trade weights ✅
Quick Trick: REER reflects true competitiveness of currency.
Common Mistakes:
MISTAKES- Confusing REER with nominal or fixed exchange rates.
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