Suppose the real exchange rate is .80 pounds of bananas in Guatemala per pound of bananas in the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 8 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?
A)3.20 Quetzals per pound
B)4.00 Quetzals per pound
C)5.00 Quetzals per pound
D)6.40 Quetzals per pound

Question

Quizplus · Accepted Answer

First, we need to convert the price of a pound of bananas in the U.S. to Quetzals using the exchange rate:

$.50 x 8 Quetzals per dollar = 4 Quetzals per pound

Then, we can use the real exchange rate to find the price of bananas in Guatemala:

.80 pounds of bananas in Guatemala / 1 pound of bananas in the U.S. x 4 Quetzals per pound = 3.20 Quetzals per pound

Therefore, the answer is C) 5.00 Quetzals per pound.

Suppose the Real Exchange Rate Is