If a Starbucks tall latte cost $3.20 in the United States and 3 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

a ...938 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U. S. than in the Euro area.

b ...938 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U. S. then in the Euro area.

c. 1.067 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U. S. than in the Euro area.

d. 1.067 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U. S. than in the Euro area.

Question

Business

Kane Patrick

Today, 08:52

If a Starbucks tall latte cost $3.20 in the United States and 3 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

a ...938 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U. S. than in the Euro area.

b ...938 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U. S. then in the Euro area.

c. 1.067 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U. S. than in the Euro area.

d. 1.067 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U. S. than in the Euro area.

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Answers (1)

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Dean Oneal · Answer 1

a ...938 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U. S. than in the Euro area.

Explanation:

We can see in the example that the Euro is cheaper than the dollar in purchasing-power parity. More specifically, the exchange rate is. 938 euros per dollar.

This is why it is more expensive to buy a tall latte in the U. S. than in Europe. The Euro is cheaper.