A car sells for $20,000 in the United States and for 2.4 million yen in Japan.Which exchange rate is consistent with purchasing power parity?

Question

Quizplus · Accepted Answer

Purchasing power parity suggests that the same good should have the same price in different countries once the exchange rate is taken into account. Therefore, we need to find an exchange rate that makes the price of the car the same in both countries. 
If we divide the Japanese price (2.4 million yen) by the exchange rate and get US$20,000, then we have achieved purchasing power parity. 
2.4 million yen / exchange rate = US$20,000
Simplifying this equation, we get: 
exchange rate = 2.4 million yen / US$20,000 = 120 yen for US$1. 
Thus, choice A is consistent with purchasing power parity.

A Car Sells for $20,000 in the United States and for 2.4