What is the nominal exchange rate

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(a) What is the nominal exchange rate? What is the real exchange rate? Explain the similarities and differences between both exchange rates.

(b) How are the loanable funds market and currency exchange market related? Explain.

(c) The UK is an open economy trading with the rest of the world. In the context of the loanable funds market for an open . economy, explain the effects on UK's output and domestic exchange rates of an output expansion overseas, which causes foreigners to buy more goods from the UK. Use graphs to illustrate your answer.

(d) Suppose now that the Bank of England (BoE) decides to intervene in the currency exchange market to offset the results on the exchange rate in part 20(c). Explain what the BoE should do to offset the results on the exchange rate. Explain how BoE's intervention will affect the economy. Use graphs to illustrate your answer.

Reference no: EM132523963

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