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"Suppose that a slice of pepperoni pizza costs £1 in London and $2 in San Francisco. If the real exchange rate is one-third of a slice of U.S. pizza for one slice of British pizza, how many pounds should you receive in exchange for $1?"

Respuesta :

Answer:

1.5

Explanation:

As it is evident in the question that a slice of pepperoni pizza costs £1 in London and $2 in the US.

The real exchange rate will be 'r' , 3 times of a slice of British pizza for one slice of the American pizza.

r = Nominal exchange rate * (Price in US/Price in London)

3 = Nominal exchange rate * (2/1)

Nominal exchange rate = £1.5.

I hope this answer helps you out.

Thank You and Good luck.