\"If a Big Mac is priced at $4.00 in Houston and €2.00 in France, the theory of
ID: 2440381 • Letter: #
Question
"If a Big Mac is priced at $4.00 in Houston and €2.00 in France, the theory of absolute purchasing power parity would suggest that"
Big Macs cost more to produce in France than in Houston.
The exchange rate is $2 for €1
The exchange rate is €2 for $1.
Big Macs cost more to produce in France than in Houston AND the exchange rate is €2 for $1.
Big Macs cost more to produce in France than in Houston.
The exchange rate is $2 for €1
The exchange rate is €2 for $1.
Big Macs cost more to produce in France than in Houston AND the exchange rate is €2 for $1.
Explanation / Answer
According to theory of absolute purchasing power parity the exchange rate between two countries will be identical as the price level of product will be same according to law price .
Exchange rate = $4/€2
Exchange rate = $2 for €1
Answer: exchange rate is $2 for €1
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