If the representative basket of European goods and services costs 40 euros, the representative U.S. basket costs $50, and the dollar/euro exchange rate is $0.90 per euro, then the price of the European basket in terms of U.S. basket is
A) [(0.9 $/euro) (40 euro per a European basket)]/[(50 $/U.S. basket)].
B) [(0.9 $/euro) (50 $/U.S. basket)]/[(40 euro per a European basket)].
C) [(40 euro per a European basket)]/[(50 $/U.S. basket) (0.9 $/euro)].
D) [(50 $/U.S. basket)].
E) [(0.9 $/euro) (40 euro per a European basket) (50 $ U.S. basket)].

Question

Quizplus · Accepted Answer

To find the price of the European basket in terms of the U.S. basket, you convert the cost of the European basket into dollars using the exchange rate ($0.90 per euro), which gives you $36 (0.9 * 40). Then, you divide this by the cost of the U.S. basket in dollars ($50) to find the ratio. This calculation matches option A.

If the Representative Basket of European Goods and Services Costs