Which of the following best describes purchasing power parity?
A) total quantity of goods and services produced by an economic system
B) total quantity of goods and services that can be purchased with one paycheck
C) total quantity of goods and services that could have been purchased if one's pay rose in the same proportion as inflation
D) the principle that exchange rates are set so that prices of similar products in different countries are about the same

Question

Quizplus · Accepted Answer

Purchasing power parity is the principle that exchange rates between two currencies are set so that the prices of similar products in different countries are about the same. This means that if the exchange rate between two currencies is not in line with their purchasing power parity, there will be opportunities for arbitrage, as goods in one country will be relatively cheaper than in the other country.

Which of the Following Best Describes Purchasing Power Parity