Assume the Pakistani Rupee (PKR) exchange rate changes from PKR54=NZD1
to PKR56=NZD1. At the same time, assume New Zealand inflation of 2%p.a. in contrast to Pakistani inflation of 8%p.a.
(a)
(1 mark)
Calculate exactly by how much does the nominal value of the PKR1 change ?
(b)
(1 mark)
Calculate exactly by how much does the real value of the PKR1 change ?
(assuming nominal exchange rate at start = real exchange rate at start)