Which of the following quotations best describes purchasing power parity?
A)"The recent high Canadian interest rate has increased demand for the Canadian dollar."
B)"The market feeling is that the Canadian dollar is overvalued and will likely depreciate."
C)"The price of bananas is the same in Canada and the United States, adjusting for the exchange rate."
D)"The expected depreciation of the Canadian dollar is currently lowering demand for it."
E)"Goods purchased in Canada are cheaper then in the United States."

Question

Quizplus · Accepted Answer

Purchasing power parity is the idea that the exchange rate between two currencies should equal the ratio of the prices of a basket of goods in both countries. The quotation that best describes this concept is "The price of bananas is the same in Canada and the United States, adjusting for the exchange rate." This suggests that the exchange rate between Canada and the United States is in equilibrium, as it reflects the relative prices of goods in both countries.

Which of the Following Quotations Best Describes Purchasing Power Parity