The domestic currency price of a representative foreign expenditure basket is
A) P, the domestic price level.
B) E, the nominal exchange rate.
C) P times E, the domestic price level times the domestic price level.
D) P , the foreign price level.
E) P times E, the foreign price level times the nominal exchange rate.

Question

The domestic currency price of a representative foreign expenditure basket is
A) P, the domestic price level. 
B) E, the nominal exchange rate. 
C) P times E, the domestic price level times the domestic price level. 
D) P , the foreign price level. 
E) P times E, the foreign price level times the nominal exchange rate.

Quizplus · Accepted Answer

The domestic currency price of a representative foreign expenditure basket is determined by the foreign price level (P*) and the nominal exchange rate (E). Therefore, the correct option is E - P*E.

The Domestic Currency Price of a Representative Foreign Expenditure Basket