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 PPP the same basket of goods in Europe should cost euros.

Question

Quizplus · Accepted Answer

The theory of Purchasing Power Parity (PPP) states that exchange rates should adjust to equalize the price of a basket of goods between two countries. Therefore, if a basket of goods costs $1000 in Canada and the exchange rate is $1.40 = 1 euro, then the equivalent cost in euros can be calculated as:
1000 CAD / 1.40 CAD/EUR = 714.29 EUR 
Therefore, the correct answer is B) 714.29.

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