The real exchange rate is:
A) difficult to calculate because it relies on very different "typical" baskets of goods.
B) a useful proximity of how far your dollars will go in another country.
C) the best measurement we have to get a sense of whether purchasing power parity holds or not.
D) All of these statements are true.

Question

Quizplus · Accepted Answer

All three statements are true. The real exchange rate can be difficult to calculate as different countries have different "typical" baskets of goods. However, it is a useful tool to determine how far your dollars will go in another country and to see whether purchasing power parity is being maintained.

The Real Exchange Rate Is