A basket of goods sold in the Eurozone is priced and weighted as shown in the following table. The United States is interested in maintaining a competitive effective exchange rate. The Fed is tasked with making sure that the dollar does not appreciate relative to the currencies of the rest of the world. Calculate the effective exchange rate, given the data, and discuss what the Fed will have to do (if anything) to achieve its goal.

Question

A basket of goods sold in the Eurozone is priced and weighted as shown in the following table.  The United States is interested in maintaining a competitive effective exchange rate. The Fed is tasked with making sure that the dollar does not appreciate relative to the currencies of the rest of the world. Calculate the effective exchange rate, given the data, and discuss what the Fed will have to do (if anything) to achieve its goal.

A Basket of Goods Sold in the Eurozone Is Priced