Suppose China exports TVs and uses the yuan as its currency, whereas Russia exports vodka and uses the ruble. China has a stable money supply and slow, steady technological progress in TV 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 the nominal exchange rate (measured as rubles per yuan)? Explain your reasoning.
(Hint: For the real exchange rate, think about the link between scarcity and relative prices.)
The question belongs to Economics and the question is about a situation where in China with its Yuan, produces TVs with increasing technological progress and Russia, on the other hand uses Ruble, produces vodka with no improvement in technology. Now, the question which of the countries have a maximum chance of increasing their currency value in the international market?
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