If a Bushel of Wheat Costs $6

question 26

Multiple Choice

If a bushel of wheat costs $6.40 in the United States and costs 40 pesos in Mexico and the nominal exchange rate is 10 pesos per dollar,then the real exchange rate is

• A) 1.60
• B) 1.25
• C) .625
• D) None of the above is correct.

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Definitions:

Convex Preferences

Consumer preferences where the consumer prefers averages or mixes of goods to extremes, represented graphically by convex indifference curves.

Monotonic Transformation

A monotonic transformation involves a function that either entirely increases or decreases, preserving the order of the original function’s elements.

Cobb-Douglas Preferences

A utility function used in economics to represent preferences of consumers, characterized by goods being perfect substitutes or complements to some degree.

Utility Function

An expression used in economics to quantify the happiness or satisfaction gained from consuming a set of goods or services.