Assume that a Ford truck sells for $30,000 in the United States and that the exchange rate is $1 = 0.8 euro. For purchasing power parity to hold, the same car in Germany should sell for

Question

Quizplus · Accepted Answer

According to the purchasing power parity theory, the exchange rate between two currencies should adjust to reflect the price levels in the two countries. Therefore, if a Ford truck sells for $30,000 in the United States, the same car in Germany should sell for the price equivalent to $30,000 in euros. Using the exchange rate provided in the question ($1 = 0.8 euro), we can convert $30,000 to euros: $30,000 x 0.8 euro/$1 = 24,000 euros. Therefore, the correct answer is A) 24,000 euros.

Assume That a Ford Truck Sells for $30,000 in the United