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melomori [17]
3 years ago
7

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of

chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?
Business
1 answer:
artcher [175]3 years ago
6 0

Answer:

Price of chicken in Japan is ¥250

Explanation:

Nominal Exchange Rate is 100 yen per dollar

it can be written as 1 dollar per 100 yen or $0.01 per yen

Real Exchange Rate = (Nominal exchange rate × Price of the foreign basket) ÷ (Price of the domestic basket)

We take Japan as the foreign country

Lets assume the price of one pound chicken in Japan as equal to Q

<h3>1 = (0.01 × Q)/2.5</h3><h3>1 = (0.01Q)/2.5</h3><h3>1(2.5) = 0.01Q</h3><h3>2.5 = 0.01Q</h3><h3>2.5/0.01 = Q</h3><h3>250 = Q</h3>

Price of Chicken in Japan is ¥250 per pound

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