Which of the following quotations best describes purchasing power parity?
A)"Goods purchased in Canada are cheaper then in the United States."
B)"The price of bananas is the same in Canada and the United States, adjusting for the exchange rate."
C)"The recent low Canadian interest rate has decreased demand for the Canadian dollar."
D)"The expected depreciation of the Canadian dollar is currently lowering demand for it."
E)"The market feeling is that the Canadian dollar is overvalued and will likely depreciate."

Question

Quizplus · Accepted Answer

Purchasing power parity is the idea that the exchange rate between two countries should equalize the prices of goods and services between those countries. Therefore, if the price of a good (in this case, bananas) is the same in two different countries after adjusting for the exchange rate, it demonstrates purchasing power parity.

Which of the Following Quotations Best Describes Purchasing Power Parity