Suppose that Northern Ireland and Southern Ireland each have 1,000 hours of labor per day.Southern workers are paid €1 per day and Northern workers are paid £1 per day.What is the approximate exchange rate associated with an international price of one keg of beer = 1 bottle of whiskey?

Question

Quizplus · Accepted Answer

The exchange rate is determined by the relative wages and productivity. If Southern workers are paid €1 and Northern workers £1, and the international price equates one keg of beer to one bottle of whiskey, the exchange rate should reflect the relative value of the currencies. Given the options, €1.14 = £1 is the closest approximation.

Suppose That Northern Ireland and Southern Ireland Each Have 1,000