An item costs $5.00 in the U.S. and 525 yen in Japan. If purchasing power parity holds, what is the yen/dollar exchange rate?

Name: An item costs $5.00 in the U.S. and 525 yen in Japan. If purchasing power parity holds, what is the yen/dollar exchange rate?
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Question

Quizplus · Accepted Answer

Purchasing power parity implies that the exchange rate should equal the ratio of the prices in the two countries. Therefore, 525 yen / $5.00 = 105 yen/dollar.

An Item Costs $5