The relative ability of two countries' currencies to buy the same basket of goods in those two countries is called ________.
A) gross national product
B) gross domestic product
C) purchasing power
D) purchasing power parity

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) is the relative ability of two currencies to purchase the same basket of goods in their respective countries. It takes into account the cost of living and inflation rates in each country to determine the exchange rate between the two currencies. GDP and GNP are measures of a country's economic output, and do not directly relate to exchange rates or purchasing power.

The Relative Ability of Two Countries' Currencies to Buy the Same