In 2010, The exchange rate between US dollar and Chinese yuan is 1:6.8, that is 1 dollar could buy 6.8 yuan. About four years ago in 2006, the exchange rate was 1:8
a) Which currency depreciates and by how much? Which currency appreciates and by how much?
b) Chinese people would like to buy ipod form the US and the American people likes Chinese silk dresses. The ipod is sold $300 in the US and the Chinese silk dress is sold 2000 yuan. Assume that the domestic prices of two goods are constant over the four years. In 2010, which good becomes more expensive in foreign country and which one becomes cheaper in foreign country?
c) Both countries produce apple. The apple is $.99 per pound in the US and 10 yuan per pound in China. If the two countries share the same apple market, that is people from both countries could buy apple with the lower price. People will buy apple from which country in 2006 and in 2010?
d) Both countries produce apple. The apple is $.99 per pound in the US and 10 yuan per pound in China. How much is the exchange rate should be to make the purchasing power of two currencies to be equal? If during the four years, the inflation rate in China is 10% and the inflation rate is the US is 7%, how much is the exchange rate should be to make the purchasing power of two currencies to be equal?