If a Starbucks Tall Latte Costs $3

question 86

Multiple Choice

If a Starbucks tall latte costs $3.20 in the United States and 3 euros in the Euro area,then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

• A).938 If the exchange rate is less than this,it costs more dollars to buy a tall latte in the U.S.than in the Euro area.
• B).938 If the exchange rate is less than this,it costs fewer dollars to buy a tall latte in the U.S.then in the Euro area.
• C)1.067 If the exchange rate is less than this,it costs more dollars to buy a tall latte in the U.S.than in the Euro area.
• D)1.067 If the exchange rate is less than this,it costs fewer dollars to buy a tall latte in the U.S.than in the Euro area.

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Definitions:

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