Gold is $420 per ounce in Canada and 2100 pesos per ounce in Mexico.According to the purchasing power parity theory,if oil is $25 a barrel in Canada,then it is _________ pesos in Mexico.

Question

Quizplus · Accepted Answer

According to the purchasing power parity theory, the exchange rate between two countries should be such that the purchasing power of each currency is equal. Therefore, we can use the ratio of the price of gold in Canada and Mexico to calculate the exchange rate between the two countries:
$420 per ounce / 2100 pesos per ounce = 0.2 dollars per peso
Now, if oil is $25 per barrel in Canada, it should cost:
$25 per barrel / $0.2 per peso = 125 pesos per barrel
Therefore, the answer is C) 125.

Gold Is $420 Per Ounce in Canada and 2100 Pesos