If a basket of goods costs $1000 in Canada 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 in Europe should cost ________ euros.

Question

Quizplus · Accepted Answer

According to the PPP theory, the exchange rate should reflect the relative prices of goods in different countries. In this scenario, $1 CAD equals $1.40 EUR. So, 1000 CAD equals 1000/1.40 = 714.29 EUR (rounded to two decimal places). Therefore, the answer is B.

If a Basket of Goods Costs $1000 in Canada and the Canadian