Assuming No Change in the Nominal Exchange Rate, How Will

Multiple Choice

Assuming no change in the nominal exchange rate, how will a lower rate of inflation in the United States relative to Canada affect the real exchange rate between the two countries? (Assume Canada is the "domestic" country.)

A) The real exchange rate will rise.
B) The real exchange rate will fall.
C) The real exchange rate will be unaffected.
D) The impact on the real exchange rate cannot be predicted.