Assuming the theory of purchasing power parity holds, if the exchange rate between the United States and Europe is $1.33 per euro, then how much does a 35 euro bottle of French champagne cost in U.S. dollars?

Question

Quizplus · Accepted Answer

According to purchasing power parity, the exchange rate should reflect the relative price levels between countries. Therefore, if the exchange rate between the US and Europe is $1.33 per euro, then a 35 euro bottle of French champagne would cost $46.55 in US dollars (35 euros x $1.33/euro = $46.55). The correct answer is B.

Assuming the Theory of Purchasing Power Parity Holds, If the Exchange