A good in the U.S.costs $20.The same good costs 150 pesos in Mexico.If the nominal exchange rate is 10 pesos per dollar,what is the real exchange rate?
A)4/3 so the good is more expensive in the U.S.
B)4/3 so the good is more expensive in Mexico
C)3/4 so the good is more expensive in the U.S.
D)3/4 so the good is more expensive in Mexico

Question

Quizplus · Accepted Answer

The real exchange rate is the ratio of the price of a good in one country to the price of the same good in another country, adjusted for the exchange rate. In this case, the price of the good in the U.S. is $20, and the price of the same good in Mexico is 150 pesos. The nominal exchange rate is 10 pesos per dollar. So, the real exchange rate is 150 pesos / $20 = 7.5 pesos per dollar. This means that the good is more expensive in the U.S. than in Mexico.

A Good in the U