Suppose a Basket of Internationally Traded Goods That Sells for $8,000

question 194

Multiple Choice

Suppose a basket of internationally traded goods that sells for $8,000 in the United States sells for €10,000 in the euro zone. According to the purchasing power parity theory, the equilibrium exchange rate should be equal to _____

• A) $2.50 per euro.
• B) $1.50 per euro.
• C) $1.25 per euro.
• D) $1.00 per euro.
• E) $0.80 per euro.

---

Definitions:

Supermarkets

Large retail stores offering a wide variety of food and household products, organized into aisles.

Straight Rebuy Order

A routine purchase transaction in which a business reorders a product without any modifications to the specifications or terms.

Wholesaler

Firm engaged in buying, taking title to, often storing, and physically handling goods in large quantities, then reselling the goods (usually in smaller quantities) to retailers or industrial or business users.

Derived Demand

Demand for a product or service that arises from the demand for another product or service, such as the demand for steel being derived from the demand for cars.