Assume that P_E is the euro price of a product,P_AU is the Australian price of the identical product,and S₀ is the spot exchange rate,quoted as the amount of Euro per Australian dollar.Given this,which one of the following correctly expresses absolute purchasing power parity?

Question

Quizplus · Accepted Answer

Absolute purchasing power parity states that the price of an identical product in two different countries should be equal when converted to a common currency using the spot exchange rate. In this case, the euro price of the product (P_E) should be equal to the Australian price of the product (P_AU) multiplied by the spot exchange rate (S₀). Therefore, the correct answer is D) P_E = S₀ ´ P_AU.

Assume That PE Is the Euro Price of a Product,PAU

Assume That P_E Is the Euro Price of a Product,P_AU