Sub part (a) Explanation Profit is attained by buying the rice from the country where it is cheap and selling it in the country where it is expensive. Since the nominal exchange rate is 80 yen per dollar, the American rice costs 8,000 ( 80 × 100 ) yen per bushel. This implies American rice is cheaper and Japanese rice is costlier (16,000 yen per bushel). So an exchange of 8,000 yen for $100 dollars is made, buying the American rice and selling them at Japanese market for 16,000 yen Sub part (b) To determine Effect on the real exchange rate.

Profit per bushel of rice.

Principles of Macroeconomics (MindTap Course List)

7th Edition

ISBN: 9781285165912

Author: N. Gregory Mankiw

Publisher: Cengage Learning

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Question

Chapter 18, Problem 8PA

Sub part (a)

To determine

Profit per bushel of rice.

Sub part (b)

To determine

Effect on the real exchange rate.

Expert Solution & Answer

Similar questions

Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?
What is the purchasing power parity exchange rate?

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