Suppose Purchasing Power Parity (PPP) Depends Only on Hamburgers

question 218

Multiple Choice

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

• A) Canadian dollar is undervalued.
• B) Canadian dollar is overvalued.
• C) demand for Canadian dollars will increase.
• D) supply of Canadian dollars will decrease.
• E) supply of U.S. dollars will decrease.

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