Nominal vs. Real Exchange Rates in Long-Run Equilibrium
A government official claims, 'To ensure our economy remains stable and competitive in the long run, our central bank must prioritize a policy of continuous nominal currency depreciation.' Critically evaluate this statement. In your answer, explain the necessary condition for an economy's international competitiveness to be consistent with a long-run supply-side equilibrium and discuss whether the official's proposed policy guarantees this condition.
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Nominal vs. Real Exchange Rates in Long-Run Equilibrium