Abigail lives in the UK and earns 40,000 pounds sterling per year. Her friend Barry lives in Japan and earns 8 million Japanese yen per year. The cost of a standardised consumption basket is 400 pounds sterling in the UK and 100,000 yen in Japan. The nominal exchange rate is Xy/s = 200, that is, one pound sterling can be exchanged for 200 Japanese yen. Can Abigail or Barry buy the most standardised consumption baskets with their income? Calculate the purchasing power parity rate PPPRy/s and explain what it measures.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Abigail lives in the UK and earns 40,000 pounds sterling per year. Her friend Barry lives in Japan and earns 8 million Japanese yen per year. The cost of a standardised consumption basket is 400 pounds sterling in the UK and 100,000 yen in Japan. The nominal exchange rate is Xy/s = 200, that is, one pound sterling can be exchanged for 200 Japanese yen.

Can Abigail or Barry buy the most standardised consumption baskets with their income? Calculate the purchasing power parity rate PPPRy/s and explain what it measures.

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