The Purchasing Power Parity Theory "Predicts" That If the Price

question 21

Multiple Choice

The purchasing power parity theory "predicts" that if the price of semiconductors in the United States is $3 and the price in Japan is 210 yen for a comparable semiconductor,the exchange rate would be (assume only 1 good is traded,there is no government intervention,and transportation costs are negligible)

• A)180 yen/$.
• B)140 yen/$.
• C)70 yen/$.
• D)$/yen 1.45.

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