Suppose the exchange rate between the Canadian dollar and the British pound is 0.5 pounds per dollar.If a pair of jeans sells for 38 pounds in Britain and purchasing power parity holds, what is the dollar price of the jeans?

Question

Quizplus · Accepted Answer

According to purchasing power parity, the price of the same good should be equal in different countries when the prices are converted to a common currency. Therefore, the price of the jeans in dollars should be:
38 pounds x 1 dollar/0.5 pounds = $76.

Suppose the Exchange Rate Between the Canadian Dollar and the British