If a basket of goods costs $10 in the United States and 100,000 rubles in Russia, then purchasing power parity will exist if the exchange rate between the ruble and the dollar is:

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) implies that the exchange rate should equalize the price of the basket of goods in both countries. If the basket costs $10 in the US and 100,000 rubles in Russia, the exchange rate should be 100,000 rubles per $10, which simplifies to 10,000 rubles per dollar.

If a Basket of Goods Costs $10 in the United