-Assume that the information in Table 19-1 applies to the cost per ton of coal in 1998.Assume that also over a 10-year period prices rise 100 percent in Great Britain and 200 percent in the United States.According to the purchasing power parity theory, the exchange rate between the dollar and the pound in the year 2008 will be

Question

Quizplus · Accepted Answer

According to the purchasing power parity theory, the exchange rate between two countries should reflect the price level difference between them. As the price level rise in the US is double that of Great Britain, the exchange rate between the two currencies should also double. Therefore, one pound would equal three dollars in 2008.

-Assume That the Information in Table 19-1 Applies to the Cost