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GPT Here is the text from the image: #2 You are thinking about planning a vacation after the term is over. You have four destinations
GPT Here is the text from the image: #2 You are thinking about planning a vacation after the term is over. You have four destinations that you are considering, for which all the plane tickets have the same price. A quick search gives you the information below about the representative cost of an hotel for a week for each of these destinations. You also collected information about the exchange rate to be able to make an informed decision. Country Hotel Price (in Country's Currency) Exchange Rate (other currency/$CAD) Canada 1,250 CAD 1 Mexico 7,500 Peso 14.29 Japan 120,000 Yen 83.33 Greece 700 Euro 0.625 Australia 1,500 AUD 1 a) For each country, compute the exchange rate if the purchasing power parity was respected, under the assumption that hotels are representative of the price level in the economy (potentially a strong assumption). b) Given the nominal exchange rate, what is the cost of a hotel in each country? Assuming that the only differences to you of each locations is the price of the hotel, then to which destination should you go? c) Given that the nominal exchange rate do not respect purchasing power parity, under our assumptions, what would we expect to happen over time? d) Give an explanation of why you might not expect to see the answer to part (c) in the real world
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