The real exchange rate is equal to the:
A) nominal exchange rate divided by the ratio of the price levels.
B) ratio of the price levels divided by the nominal exchange rate.
C) import price index divided by the nominal exchange rate.
D) import price index divided by the CPI.
E) import price index divided by the PPI.

Question

Quizplus · Accepted Answer

The real exchange rate is calculated by adjusting the nominal exchange rate for differences in price levels between countries. This is done by dividing the nominal exchange rate by the ratio of the domestic price level to the foreign price level, making choice A correct.

The Real Exchange Rate Is Equal to The