Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is C$1.00 = US$0.70 and hamburger prices are C$2.00 in Canada and US$1.50 in the U.S. PPP suggests that the

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According to PPP, the exchange rate should equalize the price of goods in different countries. Here, C$2.00 should be equivalent to US$1.50. The actual exchange rate is C$1.00 = US$0.70, meaning C$2.00 = US$1.40, which is less than the US price of US$1.50. This indicates that the Canadian dollar is undervalued, as you need more Canadian dollars to buy a hamburger in the U.S. than you would expect based on the exchange rate.

Suppose Purchasing Power Parity (PPP) Depends Only on Hamburgers