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 can be calculated by multiplying the foreign price level (P*) by the nominal exchange rate (E), which gives us the domestic currency value of the basket. Therefore, the correct answer is E: P* times E, the foreign price level times the nominal exchange rate.

The Domestic Currency Price of a Representative Foreign Expenditure Basket