Suppose purchasing power parity holds.If the price level in the United States is 100 dollars per good and the price level in Japan is 250 yen per good,then the nominal exchange rate is ________ yen per dollar.
A)0)25
B)0)4
C)2)5
D)4)0

Question

Quizplus · Accepted Answer

Purchasing power parity implies that the exchange rate between two currencies should adjust to equalize the price levels of goods in each country. Therefore, the nominal exchange rate can be calculated by dividing the price level in Japan by the price level in the United States: 250 yen / 100 dollars = 2.5 yen/dollar.

Suppose Purchasing Power Parity Holds