Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is C$1.00 = US$0.80 and hamburger prices are US$2.00 in the U.S. PPP suggests that the price of a hamburger in Canada should be C$2.50.

Question

Quizplus · Accepted Answer

According to PPP, the price of a hamburger should be the same in both countries after adjusting for the exchange rate. Therefore, if a hamburger costs US$2.00 in the U.S., it should cost C$2.50 in Canada, based on the exchange rate of C$1.00 = US$0.80. This is calculated by dividing US$2.00 by the exchange rate of 0.80, which equals C$2.50.

Suppose Purchasing Power Parity (PPP) Depends Only on Hamburgers