The hypothesis that in the long run a basket of tradable goods would cost the same in all countries is called:

Question

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The hypothesis that in the long run a basket of tradable goods would cost the same in all countries is known as the purchasing power parity (PPP) hypothesis. It is based on the idea that exchange rates should adjust to ensure that the price of a basket of goods is the same in different countries. Therefore, A is the correct choice. Relative PPP hypothesis suggests that the change in exchange rates between two currencies should be proportional to the difference in inflation rates between the two countries. Interest rate parity hypothesis suggests that the interest rate differential between two currencies is equal to the expected change in exchange rates. Monetary policy parity hypothesis suggests that the monetary policies of different countries are similar.

The Hypothesis That in the Long Run a Basket of Tradable