Assume that an item costs $100 in the U.S.and the exchange rate between the U.S.and Canada is: $1 = C$1.27.Which one of the following concepts supports the idea that the item that sells for $100 in the U.S.is currently selling in Canada for $127?

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) states that the exchange rate between two currencies should be equal to the ratio of the price levels of the two countries. If an item costs $100 in the U.S. and the exchange rate is $1 = C$1.27, then the item should cost C$127 in Canada if PPP holds true. Therefore, the concept that supports the idea that the item sells for C$127 in Canada is purchasing power parity.

Assume That an Item Costs $100 in the U