Suppose purchasing power parity (PPP) depends only on hotel rooms. The exchange rate is C$1.00 = US$0.80 and a room at the Weston Hotel in Niagara Falls, Ontario costs C$200. PPP suggests that the price of a room at the Weston Hotel in Niagara Falls, New York should be US$160.

Question

Quizplus · Accepted Answer

Since PPP depends only on hotel rooms, the exchange rate and the price of the room, we can use PPP to calculate the expected price of a room at the Weston Hotel in Niagara Falls, New York. Using PPP, we can convert the price of the room in Canadian dollars to US dollars by multiplying by the exchange rate: C$200 x US$0.80/C$1.00 = US$160. Therefore, the expected price of a room at the Weston Hotel in Niagara Falls, New York is US$160 according to PPP, making the statement true.

Suppose Purchasing Power Parity (PPP) Depends Only on Hotel Rooms