A-LevelEconomicsInternational economic issues9708/12 · May/June 2012 · Q281 Mark
A representative basket of goods costs $2500 in the United States. The same basket of goods costs £2000 in the UK. What can be deduced from this?
AThe £ sterling is 25% overvalued.
BThe £ sterling is 20% undervalued.
CThe purchasing power parity exchange rate of the £ sterling is $0.80 to the £.
DThe purchasing power parity exchange rate of the £ sterling is $1.25 to the £.
✓ Correct answer
D: The purchasing power parity exchange rate of the £ sterling is $1.25 to the £.
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