Supposethe price of gold is $300 per ounce in the United States and 2,400 pesos per ounce in Mexico.If purchasing power parity holds then, if the price of oil is 200 pesos per barrel in Mexico, the price of oil is ______ per barrel in the United States.

Question

Quizplus · Accepted Answer

Purchasing power parity implies that the exchange rate should equalize the price of goods in different countries. The exchange rate is 2,400 pesos/$300 = 8 pesos per dollar. Therefore, the price of oil in the U.S. should be 200 pesos / 8 = $25 per barrel.

Supposethe Price of Gold Is $300 Per Ounce in the United