Calculate real exchange rate if the domestic price level is 100, the price level in the US is 500, and the nominal exchange rate is 70 dollars per rupee.

$\frac{1}{14}$

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$14$

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$350$

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$470$

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Solution

Real exchange rate is $\frac{e P_{f}}{P}$ . = $\frac{500}{100 * 70}$ = $\frac{1}{14}$

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Calculate real exchange rate if the domestic price level is 100, the price level in the US is 500, and the nominal exchange rate is 70 dollars per rupee.

Real exchange rate is ePfP. = 500100∗70= 114

Real exchange rate is $\frac{e P_{f}}{P}$ . = $\frac{500}{100 * 70}$ = $\frac{1}{14}$