If the price of a burger is $2.90 Canadian in Toronto and $3 U.S.in New York, and if purchasing power parity holds, then the exchange rate is
A)103 cents U.S.per Canadian dollar.
B)$1 U.S.per Canadian dollar.
C)$3 U.S.per Canadian dollar.
D)97 cents U.S.per Canadian dollar.
E)$0.80 Canadian per U.S.dollar.

Question

Quizplus · Accepted Answer

Purchasing Power Parity (PPP) implies that the cost of a basket of goods should be the same in both countries when measured in a common currency. Given the price of a burger is $2.90 CAD in Toronto and $3 USD in New York, the exchange rate that would make these prices equivalent is 3 USD / 2.90 CAD = 1.0345, which is approximately 103 cents U.S. per Canadian dollar.

If the Price of a Burger Is $2