Please help me for my macroeconomics question. According to PPP, if a television set sells for $500 in US…..
According to Purchasing Power Parity, if a television set sells for $500 in the USA and 2000 Yuan in China, the nominal exchange rate expressed in yuan per dollar is __________ Show your calculation and explain.
Thanks!
These currency amounts has relative purchasing powers in their countries – that means this amounts are equal. So just divide 2000/500=4. Conclusion: for 4 Yuan you can theoretically buy same amount as in US for 1$. Nominal purchasing power parity exchange rate is 0.25$ for 1 Yuan (1/4=0.25)
