The real exchange rate is
A)the number of foreign goods that can be obtained in exchange for one unit of the domestic good.
B)the nominal exchange rate minus the rate of inflation.
C)the amount of foreign currency.
D)the amount of domestic currency that can be obtained in exchange for one unit of the foreign currency.

Question

Quizplus · Accepted Answer

The real exchange rate measures the relative price of domestic and foreign goods and is defined as the number of foreign goods that can be obtained in exchange for one unit of the domestic good. It takes into account both the nominal exchange rate and the relative price levels (inflation) of the two countries.

The Real Exchange Rate Is