Question

In the U.S. a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2, then, what would be the price of a candy bar in China? a. 5 yuan b. 7.2 yuan c. 3.6 yuan d. 6 yuan

Answer 1

Answer:

Hence correct option is b i.e 7.2 yuan.

Explanation:

Given data;

candy bar cost is $1

Nominal exchange rate =  6 yuan equal to 1 dollar

Real exchange rate is = 1.2 dollar per 6 yuan

Therefore price for one candy at china will be  $= 1.2 \times 6 = 7.2$

The price of candy bar at china is = 7.2 yuan

Hence correct option is b i.e 7.2 yuan.