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If We Let P = the Domestic Price of a Basket

Question 12

Multiple Choice

If we let P = the domestic price of a basket of goods and P f = the foreign price of the same basket of goods, and ε\varepsilon = the nominal exchange rate of foreign currency/$U.S., the real exchange rate is best expressed as:


A) PPfε\frac { P } { P _ { f } \cdot \varepsilon }
B) PfP\frac { P _ { f } } { P }
C) PfPε\frac { P _ { f } } { P \cdot \varepsilon }
D) εPPf\varepsilon \cdot \frac { P } { P _ { f } }

Correct Answer:

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