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If the price of a sofa is $800 in the u.s. and 2400 pesos in argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Respuesta :

HomertheGenius
The real exchange rate ( RER ) is the ratio of the price level abroad and the domestic price level.
RER = ( Nominal Exchange Rate x Foreign Price ) / ( Domestic Price )
The price of sofa is 2,400 pesos in Argentina and the nominal exchange rate is 4 pesos per dollar (  2,400 : 4 = $600 )
RER = 4 x $600 / $800 = 3
Answer: The Real Exchange Rate is 3 pesos per dollar.

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