If purchasing power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 40 Thai baht per dollar, what is the price of rice in Thailand?
A)400 baht
B)200 baht
C)100 baht
D)40 baht

Question

Quizplus · Accepted Answer

Purchasing power parity implies that the price of a good should be the same in different countries when expressed in a common currency. If a bushel of rice costs $10 in the U.S. and the exchange rate is 40 baht per dollar, then the price in Thailand should be 10 * 40 = 400 baht.

If Purchasing Power Parity Holds, a Bushel of Rice Costs