Scenario: Purchasing Power Parity A car costs $30,000 in the United States and the exchange rate is $1 = £0.50. The same car costs £12,000 in Britain. What is the purchasing power parity of the pound?

Question

Quizplus · Accepted Answer

The purchasing power parity (PPP) is calculated by dividing the cost in the local currency by the cost in the foreign currency. Here, £12,000 / $30,000 = £0.40 per $1. Since the exchange rate is $1 = £0.50, the PPP of the pound is $2.50, meaning for PPP purposes, £1 is worth $2.50.

Scenario: Purchasing Power Parity a Car Costs $30,000 in the United