Suppose That Over the Past Decade, Australian Inflation Is Less

Multiple Choice

Suppose that over the past decade, Australian inflation is less than that in the UK. Further assume that during this same period, the Australian dollar depreciates relative to the British pound. Given this information:

A) the real exchange rate can increase or remain the same, but not decrease.
B) the real exchange rate must increase.
C) the real exchange rate must decrease.
D) the real exchange rate can decrease or remain the same, but not increase.
E) the real exchange rate remains unchanged.