Someone tells you that the real exchange rate between the US and Canada for oil is...

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Someone tells you that the real exchange rate between the US and Canada for oil is...

Someone tells you that the real exchange rate between the US and Canada for oil is 1.05, and for houses 1.3. Given your understanding of purchasing power parity, does this seem reasonable?

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Answer 1

Answer #1

It seems reasonable since for PPP to work, the goods or services in question must be transportable between two countries. Since housing (or houses) are not transportable, it is possible for them to have a different exchange rate than any other good or service, which is transportable.

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The exchange rate between the US dollar and the Euro is $1 = .9 Euro. If...

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If Purchasing power parity (PPP) holds, a. the real exchange rate increases b. the real exchange...

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Someone tells you that the real exchange rate between the US and Canada for oil is...

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