Given the U.S. price level P, the foreign country price level P*, and the nominal exchange rate E in foreign currency per U.S. dollar, the real exchange rate RER is given by

Question

Quizplus · Accepted Answer

The real exchange rate measures the relative price of goods in two countries and is calculated as the nominal exchange rate multiplied by the ratio of the domestic price level to the foreign price level. Therefore, the formula is RER = E x (P/P*), which is option D.