Question
Assume that Zambia and the US trade only with each other and that each country produces only one good. Zambia produces only BMW 3-series cars
Assume that Zambia and the US trade only with each other and that each country produces only one good. Zambia produces only BMW 3-series cars and the US produces only Limousines. The price of a BMW in Zambia is K 285 000. The price of a Limo in the US is
$50 000. The exchange rate is currently at ZK/S 7.36,
- What is the real exchange rate (from the Zambian perspective)?
- Assuming that the two products are all those consumers need to live on and that they both provide a similar living standard which country has a higher cost of living? c- If the price of the BMW rises by K35 000, what is the new real exchange rate?
- If the price of the Limo rises by $3500, what is the new real exchange rate?
- How does the increase in the real exchange rate affect the nominal exchange rate?
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Financial Accounting
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
7th Edition
978-0470477151, 978-0-470-5562, 470556242, 0-470-55624-2, 9780470556245, 978-0470507018
