Question 2:

The real exchange rate of one country with respect to another

1. is equal to the ratio of the two countries' price levels.

2. measures the price of the country's output in terms of the output of the other country.

3. measures the real wage rate in the country relative to the real wage rate in the other country.

4. measures the value of the country's currency in the currency of the other country.

Choose the correct option.