If the law of one price were true for all goods and services,the _____________ exchange rate could be found from any individual set of prices.

Question

Quizplus · Accepted Answer

The term "law of one price" refers to the idea that identical goods and services should have the same price in different countries when expressed in a common currency. In other words, if the law of one price holds, the exchange rate between two currencies can be inferred from the prices of identical goods in each country. This concept is the basis of purchasing power parity (PPP), which is the idea that exchange rates should adjust so that a basket of goods and services has the same cost in different countries. Therefore, the correct choice is D) purchasing power parity.

If the Law of One Price Were True for All