PLEASE EXPLAIN: Suppose China exports TVs and uses the yuan
as currency, whereas Russia exports vodka and uses the rubble.
China has a stable money supply and slow technological progress in
production, while Russia has very rapid growth in the money supply
and no technological progress in vodka production. Based on this
information what would you predict for the real exchange rate
(measured as bottles of vodka per TV) and for the nominal exchange
rate (measured as rubbles per yuan)? Hint: For the real exchange
rate npote that as a consequence of technological progress the cost
of making a TV goes down over time in China.