Part (a) A can of beer costs US$0.9 in the US and 6 yuan in China. What will the yuan-dollar exchange rate be if purchasing power parity holds? If the current nominal exchange rate is 6.79 yuan per US dollar, is the Chinese yuan under- or overvalued? Part (b) If all prices in the US decrease by five per cent, what will happen to the yuan-dollar exchange rate?

Part (a) A can of beer costs US$0.9 in the US and 6 yuan in China. What will the yuan-dollar exchange rate be if purchasing power parity holds? If the current nominal exchange rate is 6.79 yuan per US dollar, is the Chinese yuan under- or overvalued? Part (b) If all prices in the US decrease by five per cent, what will happen to the yuan-dollar exchange rate?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Open-economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 7PA

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