| Suppose that the price of one taco is $1 in the U.S., and that tourists can buy a taco in Mexico for 2.50 pesos. If the nominal exchange rate is 7.50 pesos per dollar, which of the following statements are true |
| | | A. The real exchange rate is 1/3 Mexican tacos per U.S. taco, which are unfavorable terms of trade for American tourists. | | | B. The real exchange rate is 1/3 Mexican taco per U.S. taco, which are favorable terms of trade for American tourists. | | | C. The real exchange rate is 3 Mexican tacos per U.S. taco, which are favorable terms of trade for American tourists. | | | D. The real exchange rate is 3 Mexican tacos per U.S. taco, which are unfavorable terms of trade for American tourists. | |
| Suppose that the price of one taco is $1 in the U.S., and that tourists can buy a taco in Mexico for 2.50 pesos. If the nominal exchange rate is 7.50 pesos per dollar, which of the following statements are true |
| | | A. The real exchange rate is 1/3 Mexican tacos per U.S. taco, which are unfavorable terms of trade for American tourists. | | | B. The real exchange rate is 1/3 Mexican taco per U.S. taco, which are favorable terms of trade for American tourists. | | | C. The real exchange rate is 3 Mexican tacos per U.S. taco, which are favorable terms of trade for American tourists. | | | D. The real exchange rate is 3 Mexican tacos per U.S. taco, which are unfavorable terms of trade for American tourists. | |
Suppose that the price of one taco is $1 in the U.S., and that tourists can buy a taco in Mexico for 2.50 pesos. If the nominal exchange rate is 7.50 pesos per dollar, which of the following statements are true
Ans: C. The real exchange rate is 3 Mexican tacos per U.S. taco, which are favorable terms of trade for American tourists.
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