'Purchasing power parity' is the theory that in the long run, exchange rates move to equalise:
A)nominal interest rates across countries.
B)real GDP across countries.
C)corporate profits across countries.
D)the relative purchasing power of currencies across countries.

Question

Quizplus · Accepted Answer

Purchasing power parity suggests that exchange rates will adjust to equalize the purchasing power of different currencies in different countries. This means that if the same basket of goods costs more in one country than in another, then the exchange rate between the two currencies should adjust so that the cost of the basket of goods is the same in both currencies. This equilibrium should hold in the long run. Therefore, option D is the correct answer.

'Purchasing Power Parity' Is the Theory That in the Long