Question

L> Moving to another question will save this response Question 9 of 302і Question 9 5 points Save Answ Currencies-U.S. dollar foreign-exchange rates. Country/currencyin USS Chinese Yuan Indian Rupee Euro 0.1466 0.0201 1.3265 6.8213 49.7512 0.7539 Suppose a Big Mac costs $3.27 in Boston, and $2.69 in Paris. In this circumstance, what can we say is TRUE? o a. Purchasing Power Parity holds, and Big Macs are relatively expensive in Boston. O b. Purchasing Power Parity does not hold, and Big Macs are relatively cheap in Boston O C. Purchasing Power Parity holds, and Big Macs are relatively cheap in Boston d. Purchasing Power Parity does not hold, and Big Macs are relatively expensive in Boston e. Purchasing Power Parity holds, and Big Macs cost the same in these two cities Question 9 of 30 A Moving to another question will save this response

Answer 1

ABSOLUTE PPP WOULD IMPLY AN EXCHANGE RATE OF 3.27/2.69 = 1.2156 DOLLAR PER EURO

AND THE EXCHANGE RATE GIVEN = 1.3256 DOLLAR PER EURO

SO PPP DOES NOT HOLD

CORRECT ANSWER : b : PURCHASE POWER PARTY DOES NOT HOLD. AND BIG MACS ARE RELATIVELY CHEAPER IN BOSTON (THUMBS UP)