A Big Mac in Japan costs 240 yen while it costs $3 in the U.S..The nominal exchange rate is 100 yen per dollar.Which of the following would both make the real exchange rate move towards purchasing-power parity?
A) the price of Big Macs in the U.S.falls,the nominal exchange rate falls
B) the price of Big Macs in the U.S.falls,the nominal exchange rate rises
C) the price of Big Macs in the U.S.rises,the nominal exchange rate falls
D) the price of Big Macs in the U.S.rises,the nominal exchange rate rises

Question

Quizplus · Accepted Answer

If the price of Big Macs in the U.S. falls and the nominal exchange rate falls, the real exchange rate will move towards purchasing-power parity, as both changes make the Big Mac relatively cheaper in the U.S. compared to Japan.

A Big Mac in Japan Costs 240 Yen While It