Is it true that if, for example, Euro's purchasing power is bigger than Dollar's if the exchange rate of dollars/euros is greater than 1 ?
Opps, I switched the school subject and my name.
Curious, all the recent econ questions have been about exchange rates.
I think false. See my post to "..." above.
Yes, it is generally true that if the exchange rate of dollars to euros is greater than 1, it means that one euro is worth more than one U.S. dollar. However, determining the relative purchasing power of two currencies based solely on the exchange rate can be misleading.
Exchange rates simply represent the value of one currency in relation to another. So, if the exchange rate is 1.2 dollars/euros, it means that one euro is worth 1.2 U.S. dollars. But it doesn't necessarily indicate the purchasing power of those currencies.
To assess the relative purchasing power, you need to consider the price levels of goods and services in the respective countries. For instance, if prices in the Eurozone are generally higher than in the United States, even with a higher exchange rate, the dollar may still have greater purchasing power.
To determine this, you can look at different measures such as the Consumer Price Index (CPI) or the Big Mac Index, which provides insight into the relative cost of living and purchasing power across countries. These indices take into account the prices of a basket of goods and services to compare purchasing power.
Therefore, the exchange rate alone does not provide a complete picture of the purchasing power. Other factors such as inflation, interest rates, economic growth, and market conditions also play a significant role in determining the relative value of currencies and their purchasing power.