5. Suppose that a typical basket of goods costs 400 pesos in Mexico and 25 pound

Question

5. Suppose that a typical basket of goods costs 400 pesos in Mexico and 25 pounds in Britain and that the market exchange rate is 25 pesos per pound. Using purchasing power parity, the appropriate exchange rate for comparing the incomes of the two countries is: A. 0.25 pesos per pound. B. 10 pesos per pound. C. 16 pesos per pound. D. 25 pesos per pound. 6. Infant mortality rates in developing countries: A. are substantially higher than in developed countrie:s B. are about the same as in developed countries C. are substantially lower than in developed countries. D. cannot be computed because the data are not available.

Explanation / Answer

5.C)400 pesos = 25 pounds * PPP
PPP = 400/25
= 16

6.A) Infant mortality rate in developing countries is substantially higher than in developed countries.

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