True or False?
The answer is true. For aggregate demand for domestic output to equal the quantity produced under full-employment conditions the IS curve must cross the world real interest rate line at its intersection with YFYF . Since output and the real interest rate are thereby fixed this implies an equilibrium level of the real exchange rate. The real exchange rate will move to this equilibrium level through changes the nominal exchange rate or, under a fixed exchange rate, through changes in the price level.