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If We Let P = the Domestic Price of a Basket

Question 2

Multiple Choice

If we let P = the domestic price of a basket of goods and Pf the foreign price of the same basket of goods measured in domestic currency:


A) If P/Pf > 1 foreign products will seem inexpensive.
B) If P/Pf >1 foreign products will seem expensive.
C) If P/Pf= 1 the nominal exchange rate is also = 1.
D) You cannot determine the relative prices of foreign goods from the equation P/Pf .

Correct Answer:

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