Consider two countries, France and Russia, and two goods, wine and vodka. Assume that in both...

Consider two countries, France and Russia, and two goods, wine and vodka. Assume that in both countries, both wine and vodka account for equal shares in their respective consumption baskets. Suppose that the dollar-price of wine in France is half of the dollar-price of wine in Russia. In order for absolute PPP to hold, what must be the ratio of the dollar-price of vodka in France relative to the dollar-price of vodka in Russia?

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Expert Solution

Purchasing power parity refers to the charge per unit of 2 totally different currencies that square measure getting to be in equilibrium and operation formula are often calculated by multiplying the price of a selected product or services with the primary currency by the price of an equivalent merchandise or services in US greenbacks.

The absolute operation indicates that the charge per unit between 2 country should mirror the quantitative relation of 2 countries' value levels

As per Absolute operation Theory within the higher than Question since in france wine is 1/2 $ of what's in Russia thus hard drink value should mirror an equivalent ratioo that is fifty to value in france of what's in rousse.

Hence quantitative relation of hard drink between 2 countries are zero.5/1

Rahul Sunny answered 1 year ago

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