Real exchange rate= nominal exchange rate * (domestic price/ foreign price) one Australian dollar buys 0.67 Euros on foreign exchange markets (the nominal exchange rate is 0.67). If a standardised basket of goods and services costs 100 Euros in Germany and 200 Australian dollars in Australia.
(treat Australia as the domestic country)
- The current real exchange rate is ()
- In real terms, relative to German goods and services, Australian goods and services are () expensive (insert either more, less or equally).
- If, alternatively, purchasing power parity held between Australia and Germany then the real exchange rate would be ()