According to the table shown, if Bob is earning $30,000 in the United States and Bill is earning $40,000 in Mexico, what can be said about their standards of living?

Country: Price-level adjustment:
Australia -0.5
china .25
mexico .34
USA 0

According to the table shown, if Bob is earning $30,000 in the United States and Bill is earning $40,000 in Mexico, what can be said about their standards of living? 

A. Bill is earning more in real terms than Bob.

B. Bob is earning more in real terms than Bill.

C. Bob and Bill are earning the same amount in real terms.

D. Bob and Bill are earning the same amount in nominal terms.

Answer: A

According to the information in the table shown, if someone were earning $50,000 in Australia, approximately what would she need to earn in the United States to enjoy the same standard of living?

Country: Price-level adjustment:
Australia -0.5
china .25
mexico .34
USA 0

According to the information in the table shown, if someone were earning $50,000 in Australia, approximately what would she need to earn in the United States to enjoy the same standard of living? 

A. $75,000

B. $33,333

C. $25,000

D. $37,500

Answer: B

According to the information in the table shown, if someone were earning $30,000 in the United States, approximately what would they have to earn in China to have the same standard of living?

Country: Price-level adjustment:
Australia -0.5
china .25
mexico .34
USA 0

According to the information in the table shown, if someone were earning $30,000 in the United States, approximately what would they have to earn in China to have the same standard of living? 

A. $40,000

B. $7,500

C. $22,500

D. $15,000




Answer: C

According to the information in the table shown, if someone were earning $20,000 in Mexico, approximately what would he need to earn in the United States to enjoy the same amount of goods and services?

Country: Price-level adjustment:
Australia -0.5
china .25
mexico .34
USA 0

According to the information in the table shown, if someone were earning $20,000 in Mexico, approximately what would he need to earn in the United States to enjoy the same amount of goods and services? 

A. $30,303

B. $35,000

C. $20,030

D. $15,000


Answer: A

The information in the table shown:

Country: Price-level adjustment:
Australia -0.5
china .25
mexico .34
USA 0

The information in the table shown: 

A. allows us to compare the standard of living in one country to another.

B. has been indexed to the United States.

C. shows that the typical good in Australia is more expensive than it is in the United States.

D. All of these statements are true.

Answer: D

According to the information in the table shown, if someone were to make $35,000, she would be able to buy more goods and services if she lived in:

This table shows the price-level adjustment as compared to the United States.

Country: Price-level adjustment:
Australia -0.5
china .25
mexico .34
USA 0

According to the information in the table shown, if someone were to make $35,000, she would be able to buy more goods and services if she lived in: 

A. Australia.

B. the United States.

C. Mexico.

D. China.

Answer: C

According to the information given in the table shown, if someone makes $40,000 in the U.S., what would his salary need to be in Mexico to maintain the same standard of living?

This table shows the price-level adjustment as compared to the United States.

Country: Price-level adjustment:
Australia -0.5
china .25
mexico .34
USA 0

According to the information given in the table shown, if someone makes $40,000 in the U.S., what would his salary need to be in Mexico to maintain the same standard of living? 

A. $60,606

B. $26,400

C. $40,000

D. $13,600

Answer: B

Making international comparisons of purchasing power:

Making international comparisons of purchasing power: 

A. is not straightforward.

B. is complicated by trying to define a "typical" consumer.

C. is hard especially when attempting to figure out the true purchasing power of the poor.

D. All of these statements are true.

Answer: D

PPP-adjustment:

PPP-adjustment: 

A. gives us a more realistic sense of differences in living standards around the world.

B. lets us see that poorer countries are not quite so poor as suggested by their nominal GDP per capita.

C. gives us a realistic sense of how the living standards of the world's poorest citizens translate into dollar terms.

D. All of these statements are true.

Answer: D

PPP-adjustment involves:

PPP-adjustment involves: 

A. recalculating economic statistics to account for differences in price levels across countries.

B. a method very similar to adjusting to cost-of-living increases using a price index like the CPI.

C. recalculating a variable like GDP per capita so we can compare someone's standard of living across countries.

D. All of these statements are true.

Answer: D

The ICP index:

The ICP index: 

A. uses a broad market basket that tries to represent the full cost of living across countries.

B. is an imperfect measure because of cultural differences.

C. is an imperfect measure because of typical weather and geographical differences.

D. All of these statements are true.

Answer: D

The index used for international price comparisons is the:

The index used for international price comparisons is the: 

A. World Bank's International Comparison Program index.

B. World Bank's World Price Index.

C. United Nations' World Consumer Price Index.

D. World Trade Federation's International Price Index.

Answer: A

The Big Mac index compares:

The Big Mac index compares: 

A. the cost of a Big Mac all over the world.

B. the cost of a typical basket for consumers all over the world.

C. typical food costs, as food is the largest component of all consumption baskets.

D. typical food and energy costs across different locations.

Answer: A

The Big Mac index:

The Big Mac index: 

A. is measured by The Economist.

B. is a simple measure that indicates differing costs of living in different countries.

C. converts the price of a Big Mac worldwide to dollars, and compares it to how much they cost in the U.S.

D. All of these statements are true.

Answer: D

Comparing the cost of the same basket of goods in different locations:

Comparing the cost of the same basket of goods in different locations: 

A. can create a price index to evaluate purchasing power across different locations.

B. is based on the theory of purchasing power parity.

C. can be used for international price comparisons.

D. All of these statements are true.

Answer: D

An example of a nontradable good is:

An example of a nontradable good is: 

A. fire-protection services.

B. a Domino's pizza.

C. a double-decker bus tour of London.

D. All of these would be considered a nontradable good.

Answer: D

An example of a nontradable good is:

An example of a nontradable good is: 

A. a lead-painted toy from China.

B. a stack of firewood from Montreal, Canada.

C. a dish of handmade pasta in Lucca, Italy.

D. All of these would be considered a nontradable good.

Answer: C

An example of a nontradable good is:

An example of a nontradable good is: 

A. a bottle of wine from a remote valley in France.

B. a rare gemstone found in South Africa.

C. a haircut by a renowned Italian hairstylist in Florence.

D. All of these would be considered a nontradable good.

Answer: C

Nontradables are cited as a reason why purchasing power parity doesn't hold because:

Nontradables are cited as a reason why purchasing power parity doesn't hold because: 

A. goods that you can't transport cannot be sold for a profit elsewhere, even if the price differs in different locations.

B. there is no economic opportunity to profit if the goods cannot be sold in another market for another price.

C. location-specific goods are impossible to calculate a price elsewhere for.

D. All of these statements are true.

Answer: D

Trade restrictions can prevent purchasing power parity from holding because:

Trade restrictions can prevent purchasing power parity from holding because: 

A. the time and energy of importation paperwork can add to the cost of the good sold.

B. tariffs can add to the cost of the good sold.

C. they can add costs to the selling price because they add to the seller's cost.

D. All of these statements are true.

Answer: D