The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $50, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?
A)52 florin
B)25 florin
C)48 florin
D)100 florin

Question

Quizplus · Accepted Answer

Purchasing-power parity (PPP) implies that the same basket of goods should cost the same in both countries when converted to a common currency. If the basket costs $50 in the US and the exchange rate is 2 florins per dollar, then the basket should cost 50 x 2 = 100 florins in Aruba for PPP to hold.

The Nominal Exchange Rate Is About 2 Aruban Florin Per