Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is C$1.00 = US$0.80 and hamburger prices are C$2.00 in Canada. PPP suggests that the price of a hamburger in the U.S. should be US$1.60.

Question

Quizplus · Accepted Answer

According to PPP, the price of a hamburger in the US should be the same as in Canada when converted to the same currency. Using the exchange rate of C$1.00 = US$0.80, we can convert the Canadian hamburger price of C$2.00 to US dollars: C$2.00 * 0.80 = US$1.60. Therefore, the statement is true.

Suppose Purchasing Power Parity (PPP) Depends Only on Hamburgers