Use the table that follows to anwser this question. Treat the country listed as the home country, and treat the United States as the foreign country. Suppose the cost of the market basket in the United States is P(US)=$190. Check to see whether PPP holds for each of the countries listed, and determine whether we should expect a real appreacition or real depreciation for each country (relative to the United States) in the Long run. For the anwser, create a table similar to the one shown and fill in the blank cells(Hint: Use a spreadsheet application such as Excel)
Table:
Country Per$, Price of Market Basket(inFX) Price of U.S Basket in FX Real Exchange rate Does PPP Hold? Is FX Currency Is FX Currency (currency measured in FX units) Efx/$ (Pus times Efx/$) Qcountry/us (yes/no) overvalued or Expected to Have Undervalued? real Appreciation or Depreciation
Brazil(real) 2.1893 520
India(rupee) 46.6672 12000
Mexico(peso) 11.0131 1800
South Africa(rand) 6.9294 800
Zimbabwe(Z$) 101,347 400,000,0