If the price level in the United States is 110,the price level is 120 in Mexico,and the nominal exchange rate is 140 pesos per dollar,what is the real exchange rate from the U.S.perspective?
A)94
B)115
C)128
D)153

Question

Quizplus · Accepted Answer

The real exchange rate is calculated as (nominal exchange rate * price level of the foreign country) / price level of the home country. Thus, (140 * 120) / 110 = 16800 / 110 = 152.72, which rounds to approximately 153, not 128. My initial calculation led to an incorrect choice due to a mistake in the final step of the explanation. The correct calculation should indeed result in the option that matches the calculation provided, which in this case, due to my error in rounding and final selection, should have been option D, reflecting the correct calculation for the real exchange rate.

If the Price Level in the United States Is 110,the