Suppose the same basket of goods costs $100 in the USA and R80 in SA.According to PPP, if the prices do not change, what will be the exchange rate?
A)$5 per rand
B)$4 per rand
C)$1.25 per rand
D)$0.80 per rand

Question

Quizplus · Accepted Answer

According to Purchasing Power Parity (PPP), the exchange rate should equalize the price of the basket of goods in both countries. Therefore, $100 should equal R80, making the exchange rate $100/R80 = $1.25 per rand.

Suppose the Same Basket of Goods Costs $100 in the USA