QUESTION 8 20 You need $500 to rent an efficiency apartment in the United States

Question

QUESTION 8 20 You need $500 to rent an efficiency apartment in the United States and 425 euros to rent a comparable apartment in France. Suppose 1 euro buys $1.36 in US dollars (that's the exchange rate). How many dollars would you need to rent the apartment?$ What is one euro worth in PPP dollars (using the cost of a comparable apartment)? Hint: what is the ratio of dollars to Euros you need for a comparable efficiency apartment?)$ Does the exchange rate give an accurate picture of the purchasing power of the Euro in France? Type yes or no: | (round to the nearest cent)

Explanation / Answer

a) To rent an efficiency apartment in the Us we need 425 x $1.36 = $578.

We will need $578 to rent an efficiency apartment in France.

b) In PPP one Euro is worth (578/500) $1.156.

c) The exchange rate doesn't give an accurate picture of the purchasing power of the Euro. The answer is No.  

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