Which is correct with respect to the absolute purchasing power parity theory?
A) It postulates that the exchange rate between two currencies is equal to the ratio of the price levels in the two nations
B) it does not take into consideration transportation costs or other obstructions to the flow of international trade
C) can be very misleading
D) all of the above

Question

Quizplus · Accepted Answer

Absolute purchasing power parity theory suggests that exchange rates should equalize the price of identical goods in different countries, assuming no transportation costs or trade barriers, but it can be misleading due to real-world complexities.

Which Is Correct with Respect to the Absolute Purchasing Power