A hamburger costs $8 in Canada and ¥960 in Japan.The nominal exchange rate is ¥110 per dollar.The inflation rates in Canada and Japan are 2% and 4%,respectively.The purchasing power parity is _____ per dollar.

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) suggests that the exchange rate should adjust to equalize the price of identical goods in different countries. The price of the hamburger in Japan should be ¥960, and in Canada, it is $8. The PPP exchange rate is ¥960/$8 = ¥120 per dollar.

A Hamburger Costs $8 in Canada and ¥960 in Japan