The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A scanner costs £65.45 in England. The spot rate is currently $1.8967 per pound. ST 30378 8330378 Glelbicke Mars ONF LAR Assuming that PPP holds true, what is the price of the scanner in the United States? O $105.52 O $130.35 O $124.14 O $136.55 Suppose the price of the scanner in the United States was actually $136.55. Assuming no transaction costs, transportation costs, or import restrictions, what does PPP predict would happen to the demand for the scanner in the United States? O The demand for the scanner would increase in the United States. O The demand for the scanner would decrease in the United States.
The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A scanner costs £65.45 in England. The spot rate is currently $1.8967 per pound. ST 30378 8330378 Glelbicke Mars ONF LAR Assuming that PPP holds true, what is the price of the scanner in the United States? O $105.52 O $130.35 O $124.14 O $136.55 Suppose the price of the scanner in the United States was actually $136.55. Assuming no transaction costs, transportation costs, or import restrictions, what does PPP predict would happen to the demand for the scanner in the United States? O The demand for the scanner would increase in the United States. O The demand for the scanner would decrease in the United States.
Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates
Section: Chapter Questions
Problem 32QA
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Transcribed Image Text:The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical
good is the same when expressed in the same currency.
A scanner costs £65.45 in England. The spot rate is currently $1.8967 per pound.
ST
30378
8330378
Glelbicke Mars
ONF LAR
Assuming that PPP holds true, what is the price of the scanner in the United States?
O $105.52
O $130.35
O $124.14
O $136.55
Suppose the price of the scanner in the United States was actually $136.55. Assuming no transaction costs, transportation costs, or import
restrictions, what does PPP predict would happen to the demand for the scanner in the United States?
O The demand for the scanner would increase in the United States.
O The demand for the scanner would decrease in the United States.
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