The Real Exchange Rate and the Role of Non-Traded Goods

This chapter discusses the real exchange rate and the role of non-traded goods. The real exchange rate is a measure of a country’s competitiveness, defined through a simple equation. The Big Mac Index of The Economist magazine is provided as an example to help compare prices and real exchange rates. Further, this chapter explains traded and non-traded goods, like services, and the factors that affect tradability, which are transfer costs and protectionism.

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