Consider a basket of consumer goods. The basket of goods costs $72.00 in the Uni

Question

Consider a basket of consumer goods. The basket of goods costs $72.00 in the United States. The same basket of goods costs 224.00 pesos in Mexico. The nominal exchange rate is 14.00 pesos per dollar. The real exchange rate between U.S. and Mexican baskets of goods is baskets of Mexican goods per basket of U.S. goods. Now suppose the nominal exchange rate increases from 14.00 pesos per dollar to 28.00 pesos per dollar. If the prices of the basket remain unchanged in both the United States and Mexico, the real exchange rate between the U.S. and Mexican baskets of goods will to baskets of Mexican goods per basket of U.S. goods.

Explanation / Answer

B. Rise 14x72/224 = 4.5 28x100/300 = 9

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.