Question
Terry Lamoreaux has homes in both Sydney, Australia and Phoenix, Arizona. He travels between the two cities at least twice a year. Because of his
Terry Lamoreaux has homes in both Sydney, Australia and Phoenix, Arizona. He travels between the two cities at least twice a year. Because of his frequent trips he wants to buy some new, high quality luggage. He's done his research and has decided to go with Briggs and Riley brand three-piece luggage set. There are retail stores in both Phoenix and Sydney. Terry wants to use purchasing power parity to determine if he is paying the same price no matter where he makes his purchase.
If the price of the 3-piece luggage remains the same in Phoenix one year from now, determine what the price of the luggage should be in Sydney in one-year's time if PPP holds true (in A$). The U.S. inflation rate is 1.15% and the Australian inflation rate is 3.13%.
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