Consider a basket of consumer goods that costs $72 in the United States. The same basket of goods costs MXN 224 in Mexico. Holding constant the cost of the basket in each country, compute the real exchange rates that would result from the two nominal exchange rates in the following table. Cost of Basket in U.S. (Dollars) 72 72 Cost of Basket in Mexico (Pesos) 224 224 Nominal Exchange Rate (Pesos per dollar) 14.00 28.00 Real Exchange Rate (Baskets of Mexican goods per basket of U.S. goods)
