Three-wheel cars made in North Edsel are sold for 5000 pounds. Four-wheel cars made in South...
Three-wheel cars made in North Edsel are sold for 5000 pounds. Four-wheel cars made in South Edsel are sold for 10,000 marks. The real exchange rate between North and South Edsel is four three-wheel cars for three four-wheel cars. The nominal exchange rate between the two countries is
A. 1.50 marks/pound.
B. 2.00 marks/pound.
C. 0.50 marks/pound.
D. 0.66 marks/pound.
Homework Answers
Nominal exchange rate =
e = er(P*/P)
= 4/3*(10000/5000)
= 1.50 marks/pound
option(A)
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Three-wheel cars made in North Edsel are sold for 5000 pounds.
Four-wheel cars made in South...
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