A widget costs $1000 in the US and CAD$1200 in Canada.The current exchange rate is 1USD=1.09CAD.Given purchasing power parity,the Canadian dollar would_______to equilibrate prices
A)Appreciate
B)Depreciate
C)Not change
D)None of the above

Question

​A widget costs $1000 in the US and CAD$1200 in Canada.The current exchange rate is 1USD=1.09CAD.Given purchasing power parity,the Canadian dollar would_______to equilibrate prices
A)​Appreciate
B)Depreciate
C)Not change
D)​None of the above

Quizplus · Accepted Answer

The Canadian dollar would need to depreciate because, at the current exchange rate, the widget is more expensive in Canada (CAD$1200) than in the US (USD$1000, which is CAD$1090). To equilibrate prices, the CAD should weaken so that CAD$1200 equals USD$1000.

​A Widget Costs $1000 in the US and CAD$1200 in Canada.The

A Widget Costs $1000 in the US and CAD$1200 in Canada.The