If the price level in the US is 122 , the price level in Mexico is 127 , and the nominal exchange rate is 22.89 pesos (Mexico's currency) per dollar, what is the real exchange rate from the U.S. perspective? Please round to two decimal places and do not include the "pesos per dollar". For example, your answer was 5.675 pesos per dollar, you would only enter 5.68 .

Question

UpStudy AI · Accepted Answer

To calculate the real exchange rate (RER) from the U.S. perspective, we can use the following formula:

$$
\text{Real Exchange Rate} = \left( \frac{\text{Nominal Exchange Rate} \times \text{Price Level in Foreign Country}}{\text{Price Level in Home Country}} \right)
$$

Where:
- Nominal Exchange Rate = 22.89 pesos per dollar
- Price Level in Foreign Country (Mexico) = 127
- Price Level in Home Country (U.S.) = 122

Now, substituting the values into the formula:

$$
\text{Real Exchange Rate} = \left( \frac{22.89 \times 127}{122} \right)
$$

Calculating the numerator:

$$
22.89 \times 127 = 2906.63
$$

Now, divide by the price level in the U.S.:

$$
\text{Real Exchange Rate} = \frac{2906.63}{122} \approx 23.85
$$

Thus, the real exchange rate from the U.S. perspective is approximately **23.85**.
23.85

Real Tutor Solution

Answer

Solution

Extra Insights

Related Questions

Latest Economics Questions