Homework Answers
according to purchasing Power $6 = 4500 Won
This implies 1$ = 4500/6 = 750 won, But actual exchange rate is 900 won for a dollar and therefore Won must appreciate or the dollar must depreciate so that exchange rate appreciates and PPP is reached.
Therefore (c) is the answer to the question
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33. Suppose a given basket of goods and services costs 6 dollars in Canada and 4,500...
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3. Suppose a given basket of goods and services costs 15 dollars in Canada and 14,250 won in Korea. If the exchange rate is 900 won per dollar, purchasing power party implies that: A) the exchange rate has attained its long run equilibrium value. B) the dollar must appreciate to restore purchasing power parity, C) the dollar must depreciate to restore purchasing power party. D) the won must appreciate to restore purchasing power parity.
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