Multiple Choice
Suppose a Starbucks tall latte cost $4.00 in the United States and 3.20 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $3.50 in the United States and 2.45 euros in Euro area. If the nominal exchange rate is .80 euros per dollar, which goods have prices that are consistent with purchasing power parity?
A) Both the tall latte and the Big Mac.
B) Neither the tall latte nor the Big Mac.
C) The tall latte but not the Big Mac.
D) The Big Mac but not the tall latte.
Correct Answer:
Verified
Correct Answer:
Verified
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