Consider a basket of consumer goods that costs $90 in the United States. The same basket of goods costs CNY 105 in China.

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.

Transcribed Image Text:

Cost of Basket in U.S. Cost of Basket in China (Dollars) (Yuan) 105 90 90 105 Nominal Exchange Rate (Yuan per dollar) 7.00 10.50 Real Exchange Rate (Baskets of Chinese goods per basket of U.S. goods) Cost of Basket in U.S. Cost of Basket in China (Dollars) (Yuan) 105 90 90 105 Nominal Exchange Rate (Yuan per dollar) 7.00 10.50 Real Exchange Rate (Baskets of Chinese goods per basket of U.S. goods)

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Real Exchange Rate The real exchange rate refers to the rat... View the full answer