Consider the following conditions: follows The exchange rate between the U. S. dollar and the British pound is pound. equals$1. follows The U. S. price level is 100 and the British price level is 105. The real exchange rate equals nothing. (Enter your response rounded to two decimal places.)

The real exchange rate equals

1.05.

Explanation:

To calculate the real exchange rate use the formula:

R = (E x P*)/P

Where:

R: real exchange rate =?

E: nominal exchange rate =$1

P*: foreign price level =105

P: domestic price level =100

R= (1 x 105) / 100 =1.07 rounded to two decimal places.

Remember, the real exchange rate is only a measure of the price of foreign goods relative to the price of domestic goods of a country.

answer; is usually (less than) the socially optimal level of consumption;