Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The real exchange rate between North and South Edsel is four three-wheel cars for three four-wheel cars.The nominal exchange rate between the two countries is
A)0)50 marks/pound.
B)0)66 marks/pound.
C)1)50 marks/pound.
D)2)00 marks/pound.

Question

Quizplus · Accepted Answer

The real exchange rate is 4 three-wheel cars for 3 four-wheel cars. This means 4 three-wheel cars (each costing 5000 pounds, so 20000 pounds in total) are equivalent to 3 four-wheel cars (each costing 10000 marks, so 30000 marks in total). Therefore, 20000 pounds = 30000 marks, which simplifies to 1 pound = 1.5 marks or 1.50 marks/pound.

Three-Wheel Cars Made in North Edsel Are Sold for 5000