The answer to the question of whether or not a U.S.dollar will buy more in the U.S.or in a foreign country is determined by: A)The nominal exchange rate B)The real exchange rate C)Whether the nominal exchange rate is or

Question

The answer to the question of whether or not a U.S.dollar will buy more in the U.S.or in a foreign country is determined by:
A)The nominal exchange rate
B)The real exchange rate
C)Whether the nominal exchange rate is > or < than 1
D)You cannot determine the answer until you travel to the foreign country and convert $ to the foreign currency

Quizplus · Accepted Answer

The real exchange rate is the ratio of the prices of goods and services in two countries. It takes into account not only the nominal exchange rate but also the relative prices of goods and services. Therefore, the real exchange rate determines the purchasing power of a currency in a foreign country. If the real exchange rate is higher in the foreign country, then a U.S. dollar will buy more in that country. Conversely, if the real exchange rate is lower in the foreign country, then a U.S. dollar will buy less.

The Answer to the Question of Whether or Not a U.S.dollar