Final answer:
The claim about the exchange rate according to purchasing-power parity theory is false, as it incorrectly asserts the yen/dollar rate should be 5,760 yen/dollar when it should actually be 90 yen/dollar based on the prices given.
Step-by-step explanation:
The statement that if a case of Pepsi costs $8 in the United States and 720 yen in Japan, then according to the purchasing-power parity (PPP) theory of exchange rates, the yen/dollar exchange rate should be 5,760 yen/dollar is false.
This is because, based on PPP, the exchange rate should equal the ratio of the prices in both countries. This would be 720 yen / $8, which equals 90 yen/dollar, not 5,760 yen/dollar. PPP exchange rates help to compare economic statistics, such as GDP, internationally by correcting for differences in price levels between countries.
When applied to long-term analysis, PPP can be more stable than market exchange rates, which are prone to fluctuations due to market forces and investor sentiment.