The nominal exchange rate is about 2 Aruban florins per dollar.If a basket of goods in Canada costs $40,how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?
A)20 florins
B)40 florins
C)80 florins
D)100 florins

Question

Quizplus · Accepted Answer

According to purchasing-power parity, the price of the same basket of goods should be equal in different countries. Therefore, if a basket of goods costs $40 in Canada, the equivalent basket of goods in Aruba should also cost $40. Since the exchange rate is 2 florins per dollar, the basket of goods in Aruba should cost 2 x $40 = 80 florins. Therefore, the correct answer is C.

The Nominal Exchange Rate Is About 2 Aruban Florins Per