The nominal exchange rate is about 2 Aruban florin per dollar.If a basket of goods in the United States costs $40,how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?
A)20 florin
B)40 florin
C)60 florin
D)80 florin

Question

Quizplus · Accepted Answer

For purchasing-power parity (PPP) to hold, the cost of the basket of goods in Aruba should be equivalent to the cost in the United States when converted at the nominal exchange rate. At 2 florins per dollar, a $40 basket would cost 40 x 2 = 80 florins.

The Nominal Exchange Rate Is About 2 Aruban Florin Per