Purchase Solution

# Exchange Rate using purchasing power parity (PPP)

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Suppose a market basket of goods costs \$2000 in the United States and the exact same basket of goods costs Euro ?1500 in Germany.
a) What is the purchasing power parity exchange rate?

1\$=______? Ans. Show work here:

Suppose the actual exchange rate was \$1 = ?1 even though the price of the same basket is indicated above..

b) What would one expect the dollar and the euro to do over a period of time? (state up, down, stay same for each reflecting relative value change)

\$_______ Euro______

Make sure you set up correctly and that your answer makes logical sense.

##### Solution Summary

The expert calculates exchange rates using purchasing power parity (PPP).

##### Solution Preview

Suppose a market basket of goods costs \$2000 in the United States and the exact same basket of goods costs Euro  ?1500 in Germany.
Make sure you set up correctly and that your answer makes logical ...

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