What does purchasing-power parity explain?
A) It explains prices in the short run.
B) It explains prices in the long run.
C) It explains exchange rates in the short run.
D) It explains exchange rates in the long run.

Question

Quizplus · Accepted Answer

Purchasing-power parity (PPP) explains exchange rates in the long run. It theorizes that in the long run, exchange rates between two countries will converge to the rate that equalizes the purchasing power of each currency. This means that a unit of currency in one country should have the same purchasing power as a unit of currency in another country.

What Does Purchasing-Power Parity Explain