Question

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?

Answer 1

Price of chicken in Japan is ¥250

Step-by-step explanation:

Nominal Exchange Rate is 100 yen per dollar

it can be written as 1 dollar per 100 yen or $0.01 per yen

Real Exchange Rate = (Nominal exchange rate × Price of the foreign basket) ÷ (Price of the domestic basket)

We take Japan as the foreign country

Lets assume the price of one pound chicken in Japan as equal to Q

1 = (0.01 × Q)/2.5

1 = (0.01Q)/2.5

1(2.5) = 0.01Q

2.5 = 0.01Q

2.5/0.01 = Q

250 = Q

Price of Chicken in Japan is ¥250 per pound