# Solved > 9  Extended Problems 1) The price of a:1949815 …

9  Extended Problems

1) The price of a computer in the United States is \$1,000. The price of a car in Germany is 10,000 euros. The current exchange rate is 0.9 euros per dollar.

a)If a computer is exported from the United States to Germany with no barriers to trade, what will be the price of the computer in Germany?

b)If a car is imported to the United States from Germany with no barriers to trade, what will be the price of the car in the United States?

c)Suppose the dollar appreciates by 10 percent against the euro. How will the price of a computer exported from the United States change in Germany?

d)Suppose the dollar appreciates by 10 percent against the euro. How will the price of a car imported to the United States from Germany change in the United States?

2) Suppose that the price of a Big Mac is a good approximation of the price level in the country. A Big Mac costs £2 in London and \$3 in New York.

a)If purchasing power parity holds, what is the exchange rate between the U.S. dollar and the British pound?

b)If the current exchange rate is \$1.6 per pound, what is the dollar price of a Big Mac in London? What do you predict will happen to the exchange rate? Explain.

c)The exchange rate between the U.S. dollar and the Russian ruble is 30 rubles per dollar. If purchasing power parity holds, what is the price of a Big Mac in Moscow?

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