Which of the following talks about the relative ability of two countries' currencies to buy the same "basket" of goods in those two countries?
A) the Fisher effect
B) the law of one price
C) purchasing power parity
D) cross rates

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) talks about the relative ability of two countries' currencies to buy the same "basket" of goods in those two countries. The Fisher effect refers to the relationship between inflation and interest rates, the law of one price pertains to the idea that identical goods should have the same price regardless of the location, and cross rates refer to exchange rates between two currencies that are derived from each currency's exchange rate with a third currency.

Which of the Following Talks About the Relative Ability of Two