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Assume the current spot rate between the U.S. and the U.K. is $1.00 = £0.62. If...

  1. Assume the current spot rate between the U.S. and the U.K. is $1.00 = £0.62. If absolute purchasing power parity holds, what is the price per bushel of potatoes in the U.S. given that the same bushel costs £3.30 in the U.K.?

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Answer #1

Note : The Absolute purchasing power parity theory ( APPPT) states that the price level will be the same across countries.

Current spot rate between US and UK is

$1.00 = £0.62

Price per bushel = ($1.00 * £3.30)÷£0.62

= $5.32258065

Thank you..

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