A market basket of goods costs $350 in the United States and 200 pounds in the...
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A market basket of goods costs $350 in the United States and 200 pounds in the United Kingdom. According to the purchasing power parity theory, the exchange rate should move towards:
$0.67 per British pound
$1.50 per British pound
$0.57 per British pound
$1.75 per British pound
Homework Answers
The correct option is $1.75 per British pound.
A market basket of goods costs $350 in the United States and 200 pounds in the United Kingdom. According to the purchasing power parity theory, the exchange rate should move towards $1.75 per British pound.
Exchange rate = 350/200 = $1.75 per British pound
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