On Behalf of Your Firm,you Make Frequent Trips to Tokyo

question 15

Multiple Choice

On behalf of your firm,you make frequent trips to Tokyo.You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S.This observation is

• A)consistent with purchasing-power parity if prices in Japan are rising more rapidly than prices in the United States.
• B)consistent with purchasing-power parity if prices in Japan are rising less rapidly than prices in the United States.
• C)inconsistent with purchasing-power parity,but might be explained by limited opportunities for arbitrage in haircuts across international borders.
• D)None of the above is correct.

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