As a business executive, Honglong travels often. He wants to buy a new laptop. He will visit Sydney (Australia) and Toronto (Canada) on his next trip. Honglong wants to use purchasing power parity (PPP) to determine if he is paying the same price in Sydney and Toronto. a. If the price of the laptop is C$2,499 in Toronto and the price of the same laptop in Sydney is A$2,999, using PPP, is the price of the laptop truly equal if the spot rate is A$1.10/C$? b. If the price of the laptop remains the same in Toronto one year from now, what price should the laptop be in Sydney in one-year if PPP holds true? The Canadian Inflation rate is 4.4% and the Australian inflation rate is 3.8%.

As a business executive, Honglong travels often. He wants to buy a new laptop. He will visit Sydney (Australia) and Toronto (Canada) on his next trip. Honglong wants to use purchasing power parity (PPP) to determine if he is paying the same price in Sydney and Toronto. a. If the price of the laptop is C$2,499 in Toronto and the price of the same laptop in Sydney is A$2,999, using PPP, is the price of the laptop truly equal if the spot rate is A$1.10/C$? b. If the price of the laptop remains the same in Toronto one year from now, what price should the laptop be in Sydney in one-year if PPP holds true? The Canadian Inflation rate is 4.4% and the Australian inflation rate is 3.8%.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 7SCQ: Go to this website (http://www.measuringworth.com/ppowerus/) for the Purchasing Power Calculator at...

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