Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is C$1.00 = US$0.80 and hamburger prices are C$1.80 in Canada and US$2.00 in the U.S. PPP suggests that the

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According to PPP, the price of the same good should be equal in different countries when converted into the same currency. In this case, the price of a hamburger in Canada in U.S. dollars would be US$1.44 (C$1.80 divided by the exchange rate of C$1.00 = US$0.80). However, the actual price of a hamburger in the U.S. is US$2.00, meaning it is more expensive in the U.S. Therefore, the Canadian dollar is undervalued and would need to appreciate relative to the U.S. dollar to meet PPP.

Suppose Purchasing Power Parity (PPP) Depends Only on Hamburgers