If wheat costs four dollars per bushel in the United States and two British pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be

Question

Quizplus · Accepted Answer

According to purchasing-power parity, the exchange rate should equalize the price of the same product in two different countries. Here, the price of wheat in the US is $4 per bushel and in Great Britain, it is 2 pounds per bushel. To equalize the prices, we need to convert the pounds into dollars, so:

2 pounds = $4
1 pound = $4/2 = $2

Therefore, the exchange rate should be $2 per pound.

If Wheat Costs Four Dollars Per Bushel in the United