If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S.beef,a pound of U.S.beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar,then Chilean beef costs
A)1,250 pesos per pound.
B)800 pesos per pound
C)250 pesos per pound.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

If a pound of U.S. beef costs $2, then it costs 2 * 500 = 1000 Chilean pesos. 
The real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, so one pound of Chilean beef costs (4/5) * 1000 = 800 Chilean pesos. 
Therefore, the answer is B, 800 pesos per pound.

If the Real Exchange Rate Is 5/4 Pounds of Chilean