Suppose the real exchange rate is 4/5 pounds of Chilean beef per pound of U.S.beef,a pound of U.S.beef costs $2 and the nominal exchange rate is 600 Chilean pesos per dollar.It follows that Chilean beef costs
A)960 pesos per pound.
B)1,200 pesos per pound.
C)1,500 pesos per pound.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

To find the price of Chilean beef, we need to convert the price of U.S. beef to pesos using the nominal exchange rate, and then multiply by the real exchange rate.

1 pound of U.S. beef costs $2, which is equivalent to 2 x 600 = 1200 Chilean pesos.

So, the price of Chilean beef per pound is:

(4/5) x 1200 = 960 pesos per pound of Chilean beef

Therefore, the correct answer is (C), 1,500 pesos per pound.

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