In France, the price of a computer is 1,227.6 euros. In Japan, the price of the same computer is 137,920 yen. If a U.S. dollar can buy 1.023 euros or 119.93 yen, then purchasing power parity__________
A) does not hold and the computer is cheaper in France
B) is equal to interest rate parity and the computer is cheaper in North America
C) holds and the computer is the same price everywhere
D) does not hold and the computer is cheaper in Japan

Question

Quizplus · Accepted Answer

Purchasing power parity does not hold because when converting the prices to a common currency (USD), the computer is cheaper in Japan. Converting the Japanese price to USD: 137,920 yen / 119.93 yen/USD = $1,149.73. Converting the French price to USD: 1,227.6 euros / 1.023 euros/USD = $1,199.02. Thus, the computer is cheaper in Japan.

In France, the Price of a Computer Is 1,227