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What is the real exchange rate

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Suppose that an automobile costs $30,000 in the United States and 25,000 Euros in France. Further suppose that the exchange rate is .8 (one US dollar = .8 Euros).

a. What is the real exchange rate? ____________

b. In which country is the automobile less expensive? ____________

c. Do your answers suggest that the US will have a trade surplus or a trade deficit with France? ____________

d. Does you answer to c suggest that US citizens will be borrowing money from France or lending money to France?  ____________

e. Given the prices of the automobiles in France and the United States, what should the nominal exchange rate be in order to have purchasing power parity

Reference no: EM131542312

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