Difficulties arise when comparing factor prices across different countries. Rather than compare costs for individual products by means of the prevailing exchange rate, economists prefer to calculate prices for a particular basket of goods-a fixed list of common items-and compare the cost of that basket in one country with its cost in another. This is known as the……..
A) Wage inflation.
B) purchasing power parity (PPP) exchange rate .
C) Price inflation.
D) Gross domestic product (GDP) per capita .

Question

Quizplus · Accepted Answer

The correct answer is B) purchasing power parity (PPP) exchange rate. PPP is a method used to calculate the relative value of different currencies by comparing the prices of a specific basket of goods and services in different countries. This approach helps to understand the purchasing power of each currency more accurately than simply using market exchange rates.

Difficulties Arise When Comparing Factor Prices Across Different Countries