Computing real exchange rates Consider a basket of consumer goods that costs $60 in Canada. The same basket of goods costs NOK 40 in Norway.

Holding constant the cost of the basket in each country, compute the real exchange rates that would result from the two nominal exchange rates in the following table.

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Cost of Basket in Canada (Dollars) 60 60 Cost of Basket in Norway (Kroner) 40 40 Nominal Exchange Rate (Kroner per dollar) 3.00 2.00 Real Exchange Rate (Baskets of Norwegian goods per basket of Canadian goods) Cost of Basket in Canada (Dollars) 60 60 Cost of Basket in Norway (Kroner) 40 40 Nominal Exchange Rate (Kroner per dollar) 3.00 2.00 Real Exchange Rate (Baskets of Norwegian goods per basket of Canadian goods)

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