__________________________ say(s)that exchange rates should equalize prices of a basket of goods in two countries.
A)Purchasing Power Parity
B)Product market mechanics
C)Government regulations
D)Currency values

Question

Quizplus · Accepted Answer

Purchasing Power Parity (PPP) is a theory that suggests that over time, exchange rates between two currencies should adjust to equal the total amount of goods and services that can be purchased with those currencies in their respective countries. This means that the relative prices of goods in two countries should be reflected in the exchange rate between their currencies. In other words, a basket of goods that costs $100 in the US should cost the equivalent amount in the local currency in another country adjusted for the exchange rate. Therefore, PPP says that exchange rates should equalize prices of a basket of goods in two countries.

__________________________ Say(s)that Exchange Rates Should Equalize Prices of a Basket