If we let P = the domestic price of a basket of goods and Pf the foreign price of the same basket of goods measured in domestic currency:
A. You cannot determine the relative prices of foreign goods from the equation P/Pf .
B. If P/Pf > 1 foreign products will seem inexpensive.
C. If P/Pf >1 foreign products will seem expensive.
D. If P/Pf = 1 the nominal exchange rate is also = 1.
Answer: B
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