Suppose only two goods: good A and good B are consumed in Australia and Europe. Assume...

  

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Suppose only two goods: good A and good B are consumed in Australia and Europe. Assume the following: i. I unit of A costs $150 in Australia ii. I unit of B costs $300 in Australia . The law of one price holds for both good A and good B iv. In Europe, good A and good B each account for 50% of the aggregate consumption expenditure. Hence the European government constructs the EU Price Index as 0.5*(Price of A in Euros) + 0.5*(Price of B in Euros) v. In Australia, good A and B account for 75% and 25% of the aggregate consumption expenditure respectively. Hence the Australian government constructs the AU Price Index as 0.75* (Price of A in AUD) + 0.25* (Price of B in AUD) If ES/ -1.5, Suppose only two goods: good A and good B are consumed in Australia and Europe. Assume the following: i. I unit of A costs $150 in Australia ii. I unit of B costs $300 in Australia . The law of one price holds for both good A and good B iv. In Europe, good A and good B each account for 50% of the aggregate consumption expenditure. Hence the European government constructs the EU Price Index as 0.5*(Price of A in Euros) + 0.5*(Price of B in Euros) v. In Australia, good A and B account for 75% and 25% of the aggregate consumption expenditure respectively. Hence the Australian government constructs the AU Price Index as 0.75* (Price of A in AUD) + 0.25* (Price of B in AUD) If ES/ -1.5,