Suppose individuals wish to obtain the most accurate comparison of living standards between Australia and China. To do so, one would convert Chinese output into Australian dollars using:
A) the current real exchange rate.
B) an average of the last five years' exchange rates.
C) the prior year's real exchange rate.
D) the current nominal exchange rate.
E) purchasing power parity methods.

Question

Quizplus · Accepted Answer

Using purchasing power parity methods is the most accurate choice as it takes into account the relative cost of goods and services in each country, allowing for a more meaningful comparison of living standards. The other options do not take into consideration inflation or the true cost of goods and services, making them less accurate.

Suppose Individuals Wish to Obtain the Most Accurate Comparison of Living