Which of the following expressions represents the real exchange rate (ε)?
A)E / P.
B)EP* / P.
C)EP*.
D)EP / P*.
E) none of the above

Question

Quizplus · Accepted Answer

The real exchange rate (ε) is the nominal exchange rate (E) adjusted for the relative price level between two countries, so it would be represented by EP / P* where P* is the foreign price level. This is the expression given in choice D.

Which of the Following Expressions Represents the Real Exchange Rate