Answer:
A. increased, and Eurozone goods are now more expensive to U.S. customers
Explanation:
The exchange rate represents a link between domestic prices and foreign prices, so Three years ago, Price in the Eurozone was:
P1 (US)= 1.32 USD / EUR * P1 (Eurozone)
Now, after three years of inflation, the new prices are
P2 (US)= 1.18* P1 (US)
P2 (EUROZONE) = 1.12 *P1 (EUROZONE)
So, if we replace in the equation =
P2 (US)/1.18 = 1.32 * P2 ( EUROZONE)/1.12
P2 (US) = (1.32 * 1.18)/1.12 *P2 (EUROZONE)
P2 (US) = 1.39 P2 (EUROZONE)
As we can see, the teorical exchange rate should be 1.39 but we have a REAL exchange rate of 1.4, which is greater, the prices are now more expensive to US customers
