If a basket of goods costs $1000 in Canada and the Canadian dollar exchange rate is $1.50 = 1 euro,then according to the theory of purchasing power parity the same basket of goods in Europe should cost ________ euros.

Question

Quizplus · Accepted Answer

According to the theory of purchasing power parity, the exchange rate should reflect the relative prices of goods in different countries. Therefore, if the basket of goods costs $1000 in Canada and the exchange rate is $1.50 = 1 euro, the equivalent value in euros would be 1000/1.50, which is 666.67 euros. Therefore, the correct answer is B.

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