Suppose the cost of a typical basket of goods is 100dollarsin the United States and €200 in France. If the nominal exchange rate is 1 euro per dollar, what is the real exchange rate?

Question

Quizplus · Accepted Answer

The real exchange rate is the ratio of the prices of the same basket of goods in two countries, adjusted for the exchange rate. In this case, the price of the basket of goods in the United States is $100 and the price of the same basket of goods in France is €200. The nominal exchange rate is 1 euro per dollar. So, the real exchange rate is €200 / $100 = 2.

Suppose the Cost of a Typical Basket of Goods Is