The theory of purchasing power parity says:
A) the real exchange rate is always greater than one.
B) a dollar should buy the same goods no matter where in the world you go.
C) the dollar price of a basket of goods in the U.S. should equal the yen price of a basket of goods in Japan.
D) the real exchange rate is always less than one.

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) suggests that in the absence of transaction costs and barriers to trade, the same goods should have the same price when expressed in a common currency, meaning a dollar should buy the same amount of goods in any country.

The Theory of Purchasing Power Parity Says