Assume that the price level in both the United States and Europe is 200,and that the real and nominal exchange rate is 6 euros per dollar.If the price level in the United States increases by 20 percent and the nominal exchange rate remains unchanged,then the real exchange rate is

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When the price level in the United States increases by 20 percent, the new price level becomes 240 (200 * 1.20). Since the nominal exchange rate remains unchanged at 6 euros per dollar, the real exchange rate adjusts to reflect the change in purchasing power. The real exchange rate is calculated as the nominal exchange rate adjusted for price levels in both countries. Given that the European price level remains at 200, the real exchange rate becomes 6 * (240/200) = 7.2 euros per dollar.

Assume That the Price Level in Both the United States