If purchasing power parity holds and the nominal exchange rate is 1.5 U.S. dollars for 1 Canadian dollar, then a Big Mac that costs 2 Canadian dollars in Canada will cost __________ U.S. dollar(s) in the United States.

Question

Quizplus · Accepted Answer

If purchasing power parity holds, the price of a Big Mac in the U.S. should be the Canadian price converted to U.S. dollars using the exchange rate. So, 2 Canadian dollars * 1.5 U.S. dollars/Canadian dollar = 3 U.S. dollars.

If Purchasing Power Parity Holds and the Nominal Exchange Rate