If the Price of a Pair of Shoes in the U.S.is

question 17

Multiple Choice

If the price of a pair of shoes in the U.S.is $80,the price of the same pair of shoes in Germany is 120 euro,and the exchange rate is 1.5 euro/$,the euro:

• A) is correctly valued according to PPP.
• B) is overvalued relative to PPP.
• C) is undervalued relative to PPP.
• D) None of the above is correct.

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Definitions:

Interest Rate

The charge, delineated as a percentage of the initial amount, that a lender requires from a borrower for the utilization of assets.

One-sample Chi-square

A statistical test used to determine if a sample data matches a population with a specific distribution.

Goodness-of-fit Test

A statistical test used to determine how well observed data match the expected distribution or model.

Test of Independence

A statistical method used to determine whether two categorical variables are independent of each other.