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If purchasing-power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 25 Thai baht per dollar, what is the price of rice in Thailand?

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Answer:

The price of rice in the Thailand is likely to be 250 Thai baht per bushel.

Step-by-step explanation:

According to the purchasing power parity theory, the exchange rate between two countries is based on a basket of goods. The nominal exchange rate is the ratio of prices of goods in two different countries.

The price of rice in the US is $10 per bushel.

The nominal exchange rate between US dollars and Thai baht is 25 Thai baht/$.

The nominal exchange rate =
(price\ of\ rice\ in\ Thailand)/(price\ of\ rice\ in\ US)

25 Thai baht/$=
(price\ of\ rice\ in\ Thailand)/(\$10)

Price of rice in Thailand =
\$10\ *\ 25

Price of rice in Thailand = $250