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Purchasing power parity implies prices in Canada and the US will be the same after accounting for the exchange rate: Q=SPusPc. Calculate US prices

 

Purchasing power parity implies prices in Canada and the US will be the same after accounting for the exchange rate: Q=SPusPc. Calculate US prices in terms of Canadian dollars using the exchange rate data. Does PPP hold? (Hint. If PPP holds, then Q-1 all the time. Remember though that price indices are set to 100 at some point in time, which means that q may not be 1, but PPP implies that q is constant over the period). Discuss

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