If a basket of goods costs $400 in the US and 40,000 yen in Japan, PPP theory predicts that the dollar/yen exchange rate should be O $2 per Japanese yen O $.20 per Japanese yen $20 per Japanese yen $.01 per Japanese yen
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In this case, the basket of goods costs $400 in the US and 40,000 yen in Japan. Therefore, the exchange rate should be: $$ \frac{40000 \text{ yen}}{400 \text{ dollars}} = 100 \text{ yen per dollar} $$ Show more…
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