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Question 5: Real Exchange Rates [12 Points]

(a) What is the difference between the real exchange rate and the nominal exchange rate? [4 Points]

Suppose a box of hot chilies in Thailand costs 1000 baht, while the same box of chilies in the US costs

$25. If the exchange rate between the Thai baht and the US dollar is $1= 50 baht:

(b) How many boxes of chilies can you buy in Thailand for one box purchased in the US? [4 Points]

Thailand for the amount it takes to purchase one box in the US? What is the effect on US net exports?

Explain. [4 Points]

Solution:

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