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Suppose 0.6 euro (€) trade for one (1) Australian dollar ($), the Australian price level equals $1 per good, and the German price level equals €1.08 per good.What is the real exchange rate in German goods per Australian good, rounded to two decimal points?a.0.56b.1.80c.1.11d.0.90

Question

Suppose 0.6 euro (€) trade for one (1) Australian dollar (),theAustralianpricelevelequals), the Australian price level equals 1 per good, and the German price level equals €1.08 per good.What is the real exchange rate in German goods per Australian good, rounded to two decimal points?a.0.56b.1.80c.1.11d.0.90

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Solution

The real exchange rate is calculated as the nominal exchange rate times the ratio of the foreign price level to the domestic price level.

In this case, the nominal exchange rate is 0.6 €/,theAustralianpricelevelis, the Australian price level is 1 per good, and the German price level is €1.08 per good.

So, the real exchange rate in German goods per Australian good is:

Real exchange rate = Nominal exchange rate * (Foreign price level / Domestic price level)

= 0.6 €/(1.08pergood/ * (€1.08 per good / 1 per good)

= 0.648 German goods per Australian good

Rounded to two decimal points, the real exchange rate is 0.65 German goods per Australian good.

However, none of the options provided (a. 0.56, b. 1.80, c. 1.11, d. 0.90) match this calculation. Please check the numbers or the options again.

This problem has been solved

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