The exchange rate between the british pound and the u. s. dollar is 2. in england, the price level is 1.0 and the one-year interest rate is 20%. in the united states, the price level is .8 and the one-year interest rate is 8%. the inflation rate in both countries is zero. refer to the information above. the real exchange rate (from the united states' perspective) is
a. 625.
b. 8.
c. 1.6.
d. 2.0.
e. none of the above

C) 1.6

Explanation:

The real exchange rate is calculated by multiplying the nominal exchange rate by the price level of the countries:

nominal exchange rate = 2 US dollars per British pound = $2/£

real exchange rate = $2/£ x (US price level / British price level) = $2/£ x 0.8 = $1.6/£

due to the changes the federal reserve is making the unused reserves will impact the economy by them facing inflation. inflation is definfed as the increase in pricing of a good or service but the decline of the value of money used for purchasing those items. when the economy has a high inflation rate, they are subject to money loss and hurt on the economy.