Suppose that $1 U.S. costs $1.50 Canadian. If in St. Louis a CD costs $10 U.S. and in Montreal it costs $15 Canadian, then
A) purchasing power parity holds.
B) Canadians will buy CDs in St. Louis.
C) Americans will buy CDs in Montreal.
D) Virgin Records will have an incentive to build more stores in North America.

Question

Quizplus · Accepted Answer

Purchasing power parity holds because the cost of a CD in both countries is equivalent when adjusted for the exchange rate.

Suppose That $1 U