If a basket of goods costs 1000 euros in Europe and the Canadian dollar exchange rate is $1.40 = 1 euro,then according to the theory of purchasing power parity (PPP)the same basket of goods should cost ________ in Canada.

Question

Quizplus · Accepted Answer

According to the theory of purchasing power parity (PPP), the cost of a basket of goods should be the same in equivalent currency terms across different countries. Therefore, if the basket costs 1000 euros in Europe and the exchange rate is $1.40 = 1 euro, then in Canada, the basket should cost 1000 euros * $1.40/euro = $1400.

If a Basket of Goods Costs 1000 Euros in Europe