Suppose it takes 1.25 yen to buy a rupee, and the price level in Japan is 3 and the price level in India is 1.2. Calculate the real exchange rate between India and Japan (the price of Japanese goods in terms of Indian goods). (Hint: First find out the nominal exchange rate as a price of yen in rupees).
Price level in foreign country: (Japan) Pf = 3
Price level in home country: (India) P = 1.2
Now, real exchange rate
Price of 1.25 yen = 1 rupee
Price of 1 yen = =
Therefore,
So, real exchange rate
= 2
Therefore, the real exchange rate is 2.
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Welcome to the NCERT Solutions for Class 12 Macro Economics - Chapter . This page offers a step-by-step solution to the specific question from Excercise 1 , Question 4: Suppose it takes 1.25 yen to buy a rupee, and the price level in Japan is 3 and the price level in I....
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