If Purchasing Power Parity Holds, the Price Level in the U.S

question 376

Multiple Choice

If purchasing power parity holds, the price level in the U.S. is 120, and the price level in Canada is 140, which of the following is true?

• A)the real exchange rate is 120/140.
• B)the real exchange rate is 140/120.
• C)the nominal exchange rate is 120/140
• D)the nominal exchange rate is 140/120

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Definitions:

Electricity

A form of energy resulting from the existence of charged particles, used as a power source.

Variable Component

Denotes a part of a cost or expense that varies directly with the level of activity or output.

Mixed Cost

A cost that contains both variable and fixed cost elements, changing with the level of production or sales but not in direct proportion.

Electrical Cost

The expense associated with the consumption of electrical energy or the cost related to electrical work in construction or maintenance.