Asked by Paige Colley on Jun 16, 2024
Verified
A quality men's suit in the U.S. costs $400. The same suit costs 300 British pounds in the U.K. The nominal exchange rate is .60 pounds per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the suit cheaper?
Real Exchange Rate
The pace at which one country's currency can be swapped for that of another, after accounting for inflation.
Nominal Exchange Rate
The rate at which one currency can be exchanged for another currency, not adjusted for inflationary differences between the two currency areas.
British Pounds
The official currency of the United Kingdom, also known as GBP (Great British Pound).
- Learn and employ the concept of real versus nominal exchange rates in the examination of international economic conditions.
Verified Answer
DA
Dorothy AntoineJun 21, 2024
Final Answer :
The real exchange rate = $400 x .60/300 = 240/300 = .80.
The real exchange rate is less than 1. The suit is cheaper in the U.S.
The real exchange rate is less than 1. The suit is cheaper in the U.S.
Learning Objectives
- Learn and employ the concept of real versus nominal exchange rates in the examination of international economic conditions.