A certain cell phone sells for 2400 yuan in China and for $300 in the U.S. The nominal exchange rate is 6.5 yuan per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the cell phone cheaper?
The real exchange rate = $300 x 6.5/2400 = 1950/2400 = .8125
The real exchange rate is less than 1 . The cell phone is cheaper in the U.S.
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