If a basket of goods in the United States costs $1,000 and the same basket of goods in Japan costs ¥125,000, then for PPP to exist, $1 should trade for ____ Japanese yen.

Question

BlackTom AI · Accepted Answer

The question asks about purchasing power parity (PPP) exchange rates by comparing the cost of the same basket of goods in two countries.
First, identify the given prices: the basket costs $1,000 in the United States and ¥125,000 in Japan.
Then, compute the PPP exchange rate by dividing the price in the foreign country by the price in the home country: 125,000 yen / 1,000 dollars = 125 yen per dollar.
This means, under PPP, 1 US dollar should exchange for 125 Japanese yen.
Note on the provided data: there are no answer options listed in the question, so we rely on the calculation from the stated prices rather than selecting from given choices. If options were present, they would ideally include 125 as the PPP rate in yen per dollar.
Finally, reflect on the intuition: PPP asserts that identical goods should have the same price when expressed in a common currency, so the ratio of prices directly yields the implied exchange rate between the two currencies.

01:220:300:01 INTERNATIONAL ECON Qz07: Long-run model of exchange rates

If a basket of goods in the United States costs $1,000 and the same basket of goods in Japan costs ¥125,000, then for PPP to exist, $1 should trade for ____ Japanese yen.

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