Suppose that there are only two goods produced in the world: Chairs and Pencils. Chairs are the good traded in the world market. The following table shows information on the production and prices of Chairs and Pencils in two countries A and B. Assume that the population is 1.

1)What is the market exchange rate between the currencies the two countries.

0.67

1.5

0.25

4

2)Calculate the ratio of GDP/capita in country A to GDP/capita in country B, using the PPP exchange rate.

3.87

2

0.11

0.17

Country Chairs produced Pencils produced Price of Chair in local currency Price of pencil. in local currency Per capita Per capita A A 8 20 6 8 B 4 10 4 2