Which of the following statements is the MOST accurate?
A) The prices of identical commodity baskets, when converted to a single currency, are the same across countries.
B) The prices of identical commodity baskets, when converted to a single currency, differ substantially across countries.
C) The prices of identical commodity baskets, when converted to a single currency, do not differ substantially across countries.
D) The prices of identical commodity baskets, when converted to a single currency, are often the same across countries.
E) The prices of identical commodity baskets, when converted to a single currency, are the same across countries more than 50% of the time.

Question

Quizplus · Accepted Answer

The statement that the prices of identical commodity baskets, when converted to a single currency, differ substantially across countries is the most accurate. This is because of the concept of purchasing power parity (PPP), which suggests that the exchange rate should adjust to equalize the prices of an identical basket of goods and services in different countries. However, in reality, the prices of goods and services differ due to various factors such as transportation costs, taxes, and local market conditions, leading to differences in the cost of living across countries. Thus, the prices of commodity baskets, when converted to a single currency, can vary significantly across countries.

Which of the Following Statements Is the MOST Accurate