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 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 different countries when expressed in a common currency. If 1 euro equals $1.40, then a basket costing 1000 euros should cost 1000 * 1.40 = $1400 in Canada.

If a Basket of Goods Costs 1000 Euros in Europe