The principle of ________ states that exchange rates are set so that the prices of similar products in different countries are about the same.
A) nominal GDP
B) gross national product
C) consumer price index
D) equal prices
E) purchasing power parity

Question

Quizplus · Accepted Answer

The principle of purchasing power parity (PPP) states that exchange rates between currencies are determined in such a way that the prices of similar goods and services in different countries are equalized. This principle is based on the idea that in a globalized market, prices should be uniform once they are adjusted for the purchasing power of different currencies. PPP is used as a benchmark for comparing living standards across different countries.

The Principle of ________ States That Exchange Rates Are Set