The real exchange rate between U.S. dollars and the Japanese yens is the price of U.S. goods relative to the price of Japanese goods denominated in the U.S. dollar. If this real exchange rate is below one,the same basket of goods is ________ in the United States than in Japan,and the purchasing power of the U.S. dollars is ________ than the Japanese yens.

Question

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If the real exchange rate is below one, it means that U.S. goods are cheaper relative to Japanese goods. Therefore, the same basket of goods will be cheaper in the United States than in Japan. This also means that the purchasing power of the U.S. dollar is lower than that of the Japanese yen since it can buy more goods in Japan with the same amount of money.

The Real Exchange Rate Between U