If 5 Swiss francs trade for $1, the U.S. price level equals $1 per good, and the Swiss price level equals 2 francs per good, then the real exchange rate between Swiss goods and U.S. goods is Swiss good(s) per U.S. good.
A)0.5
B)2.5
C)5
D)10

Question

Quizplus · Accepted Answer

The real exchange rate is calculated as (Swiss price level / U.S. price level) * (Swiss francs per dollar). Substituting the given values, we get (2 francs per good / $1 per good) * (5 francs per dollar) = 10 francs per dollar. To get the rate in the desired units, we can take the reciprocal, giving us the answer of 0.1, or 2.5 Swiss goods per U.S. good. So, the best choice is B.

If 5 Swiss Francs Trade for $1, the U