Suppose a Starbucks Tall Latte Costs $4

question 21

Multiple Choice

Suppose a Starbucks tall latte costs $4.00 in the United States and 2.50 euros in the Euro area.Also,suppose a McDonald's Big Mac costs $4.50 in the United States and 3.60 euros in the Euro area.If the nominal exchange rate is .80 euros per dollar,which goods have prices that are consistent with purchasing-power parity?

• A)both the tall latte and the Big Mac
• B)the tall latte but not the Big Mac
• C)the Big Mac but not the tall latte
• D)neither the Big Mac nor the tall latte

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