Which of the following quotations best describes purchasing power parity?
A)"The recent high Canadian interest rate has increased demand for the Canadian dollar."
B)"The market feeling is that the Canadian dollar is overvalued and will likely depreciate."
C)"The price of bananas is the same in Canada and the United States, adjusting for the exchange rate."
D)"The expected depreciation of the Canadian dollar is currently lowering demand for it."
E)None of the above.

Question

Quizplus · Accepted Answer

Purchasing power parity refers to the idea that identical goods should have the same price in different countries, adjusted for currency exchange rates. The quotation that describes this concept is C, as it demonstrates that the price of bananas is the same in Canada and the United States after adjusting for the exchange rate. The other quotations relate to factors influencing currency demand and exchange rates, but do not directly mention purchasing power parity.

Which of the Following Quotations Best Describes Purchasing Power Parity