According to purchasing power parity (PPP),foreign currency exchange rates between two countries adjust to reflect changes in each country's
A)unemployment rates.
B)export competitiveness.
C)inflation rates.
D)foreign exchange reserves.

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) theory states that exchange rates between two countries adjust to reflect changes in their relative prices and inflation rates. The aim is to ensure that the same basket of goods and services has the same price in both countries. Therefore, the exchange rates change to maintain the equality of purchasing power between two currencies. So, the correct answer is inflation rates (C). Unemployment rates (A), export competitiveness (B), and foreign exchange reserves (D) are not directly related to purchasing power parity.

According to Purchasing Power Parity (PPP),foreign Currency Exchange Rates Between