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The price of a basket of goods is $2000 in the U.S. If purchasing-power parity holds, and the dollar buys two units of some country’s currency, then how many units of foreign currency does the same basket of goods cost in that country?
a. 4000
b. None of the above are correct.
c. 1000
d. 2000

Respuesta :

beritop1089

Answer:

a. 4000

Explanation:

Let the new currency be represented by a variable "XD"

Using the U.S /foreign currency exchange rate, find the cost of the same basket in XD;

If 1 USD = 2XD

then 2,000 USD = 2,000*2

= 4,000 XD

Therefore, if you were to buy the same basket of goods in the foreign currency, you will spend 4,000 units. This makes choice A correct

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