SELECT * FROM question_mgmt as q WHERE id=5445 AND status=1 SELECT id,question_no,question,chapter FROM question_mgmt as q WHERE courseId=3 AND subId=59 AND chapterId=607 and ex_no='1' AND status=1 ORDER BY CAST(question_no AS UNSIGNED) CBSE Free NCERT Solution of 12th macro-economics Open Economy Macroeconomics suppose it takes 1 25 yen to buy a rupee and the

Question:

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).

Answer:

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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