iscuss the difference in GDP per capita using the two different exchange rates. Which one is larger? Why? Peru’s GDP per capita in USD using Official Exchange Rate: USD 6,000 Peru’s GDP per capita in USD using PPP Exchange Rate: USD 17,418.23

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Discuss the difference in GDP per capita using the two different exchange rates. Which one is larger? Why?

Peru’s GDP per capita in USD using Official Exchange Rate: USD 6,000
Peru’s GDP per capita in USD using PPP Exchange Rate: USD 17,418.23

The local currency in Peru is the Peruvian Nuevo Sol (PNS). In 2020, the official exchange rate between
the PNS and the USD was 3 (i.e., 3 PNS = 1USD). Table 1 gives local currency prices of three goods in
Peru and the United States. Table 1 also gives the expenditure shares of each good (i.e., what fraction of
total expenditures do people spend on each good).
Table 1. Local Prices & Expenditure Shares in Peru and the U.S.
Prices in Local Currencies
Item
Expenditure Share
Peru
U.S.
Corn (1 kg)
T-Shirts (1 shirt)
Rent (2 bedroom apartment)
0.3
6 PNS
2 USD
0.2
45 PNS
15 USD
0.5
1,000 PNS
1,000 USD
Transcribed Image Text:The local currency in Peru is the Peruvian Nuevo Sol (PNS). In 2020, the official exchange rate between the PNS and the USD was 3 (i.e., 3 PNS = 1USD). Table 1 gives local currency prices of three goods in Peru and the United States. Table 1 also gives the expenditure shares of each good (i.e., what fraction of total expenditures do people spend on each good). Table 1. Local Prices & Expenditure Shares in Peru and the U.S. Prices in Local Currencies Item Expenditure Share Peru U.S. Corn (1 kg) T-Shirts (1 shirt) Rent (2 bedroom apartment) 0.3 6 PNS 2 USD 0.2 45 PNS 15 USD 0.5 1,000 PNS 1,000 USD
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