Suppose that a Ford costs $20,000 in the United States and £10,000 in Britain. Purchasing power parity is an exchange rate of £2 per dollar.

Question

Quizplus · Accepted Answer

If purchasing power parity were true, then the exchange rate would be $1 = £2, so the Ford would cost the same amount in both countries. However, in this scenario, the Ford costs less in Britain even after converting the pounds to dollars. Therefore, purchasing power parity is not being met in this case.

Suppose That a Ford Costs $20,000 in the United States