The nominal exchange rate is about 3 Aruban florins per dollar.If a basket of goods in Canada costs $40,how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?
A) 20 florins
B) 40 florins
C) 80 florins
D) 120 florins

Question

Quizplus · Accepted Answer

For purchasing-power parity to hold, the cost of the basket of goods in Aruba in florins should equal the cost in Canada in dollars multiplied by the exchange rate. Therefore, 40 dollars * 3 florins/dollar = 120 florins.

The Nominal Exchange Rate Is About 3 Aruban Florins Per