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 ________.

Question

Quizplus · Accepted Answer

To determine the purchasing power parity (PPP) between France and Japan, we need to convert the price of the computer in both currencies to a common currency, such as the US dollar.

In France, the computer costs 1,227.6 euros, or $1,195.33 (1,227.6 x 1.023). In Japan, the computer costs 137,920 yen, or $1,150.87 (137,920 ÷ 119.93).

Thus, the PPP exchange rate between France and Japan is $1 = 108.32 yen (1,195.33 ÷ 10,979.20).

However, the actual exchange rate is $1 = 119.93 yen, so the yen is overvalued and the PPP does not hold. Therefore, the computer is cheaper in Japan than in France.

Therefore, the correct answer is C: does not hold and the computer is cheaper in Japan.

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