A bagel cost $1 in New York and 0.5 euros in Paris.If the real exchange rate is one-half of a New York bagel for a Parisian bagel, how many euros should you receive in exchange for one dollar?

Question

Quizplus · Accepted Answer

The real exchange rate is the ratio of the prices of the same goods in two different countries. In this case, the ratio of the price of a New York bagel to a Parisian bagel is 2:1. Therefore, to exchange one dollar for euros, we need to multiply the exchange rate by the price of a Parisian bagel in dollars and then divide by the price of a Parisian bagel in euros.

Exchange rate = 2:1
Price of a Parisian bagel in dollars = 0.5 euros = 0.5*1.1 = $0.55 (assuming a conversion rate of 1 euro = 1.1 dollars)
Price of a Parisian bagel in euros = 0.5 euros

(Exchange rate * Price in dollars) / Price in euros = (2 * 0.55) / 0.5 = 1.1

Therefore, you should receive 1.1 euros in exchange for one dollar. The closest choice is C: 0.5, which is the reciprocal of the correct answer.

A Bagel Cost $1 in New York and 0