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------------------------------------------------ Given that S(SGD/USD) =1.4000, the price level of the Singapore is 110 and the real exchange rate Q(S G D / U S D)=1.3000, what is the price level of the USA? Choose the answer that is closet to your calculation.

o 84.4

o 97.9

o 118.5

o 102.1

Given that S(SGD/USD) = 1.4000, the price level of the Singapore is 110 and the real exchange rate Q(S G D / U S D) = 1.3000, the price level of the USA is 84.4. We can use the formula; 1/S × P1/P2 = Q

where, S is the exchange rate (SGD/USD), P1 and P2 are the price levels of the home country and the foreign country respectively, and Q is the real exchange rate.

Putting values, we get;1/1.4 × 110/P2 = 1.3Dividing both sides by 1.4;110/P2 = 1.4 × 1.3P2 = 110/(1.82) = 60.44Since we need to find the price level of the USA, we can use the above formula again and find P1.

Putting values, we get;

1/1.4 × P1/60.44 = 1Dividing both sides by 1.4;

P1/60.44 = 1.4P1 = 1.4 × 60.44 = 84.416So, the price level of the USA is closest to 84.4.

Therefore, the option (a) 84.4 is the correct answer.

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