Asked by stefanie gacho on Jun 06, 2024
Verified
According to purchasing power parity theory, if ________ is(are) in equilibrium, products will cost the same in each country.
A) imports and exports
B) consumer spending
C) interest rates
D) domestic products
E) exchange rates
Purchasing Power Parity
An economic theory that compares different countries' currencies through a "basket of goods" approach, adjusting for the cost of living and inflation rates to determine relative currency values.
Exchange Rates
The value of one currency for the purpose of conversion to another.
- Understand the significance and use of purchasing power parity along with the Big Mac Index.
Verified Answer
SG
stephanie glassJun 10, 2024
Final Answer :
E
Explanation :
According to purchasing power parity theory, if exchange rates are in equilibrium, products will cost the same in each country. This is because, in theory, the exchange rate should adjust so that the same basket of goods costs the same in different countries.
Learning Objectives
- Understand the significance and use of purchasing power parity along with the Big Mac Index.