If the Current Exchange Rate Is 1€/1$U

question 9

Multiple Choice

If the current exchange rate is 1€/1$U.S.and bagels cost 1€ in France and 1$ in the U.S.and the current exchange rate for bagels is 0.74 European bagel/1U.S.bagel and if the bagels are identical:

• A)An American would be better off trading their bagels for European bagels
• B)A person from France would be better off trading their bagels for U.S.bagels
• C)The Theory of Purchasing Power Parity is working
• D)The nominal exchange rate and the real exchange rate are equal

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