Suppose a Starbucks Tall Latte Cost $4

Multiple Choice

Suppose a Starbucks tall latte cost $4.00 in the United States, 5.00 euros in the euro area and $2.50 Australian dollars in Australia. Nominal exchange rates are .80 euros per dollar and 1.4 Australian dollars per U.S. dollar. Where does purchasing-power parity hold?

A) both the euro area and Australia
B) the euro area but not Australia
C) Australia but not the euro area
D) neither the euro area or Australia