show the calculation 10 Assume China had an inflation rate of about 1.6% in a recent...

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show the calculation
10 Assume China had an inflation rate of about 1.6% in a recent year, in contrast to U.S. inflation of about 2.2% During the

business finance

Answer 1

Answer #1

Lets say initially Price of an item in China be 6.1 Yuan and in US be 6.1/6.1=1 dollar

Real exchange rate=6.1*1/6.1=1 yuan/dollar

After 1 year, Price in China=6.1*(1+1.6%)=6.1976 yuan

Price in US=1*(1+2.2%)=1.022 dollar

Real exchange rate=6.3*1.022/6.1976=1.03888602
=1.03888602 yuan/dollar

Hence, real value of yuan has decreased

Answer 2

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