The theory of international exchange that holds that exchange rates are set so that the prices of ________ goods in different countries is ________ is the purchasing power parity theory.

Question

Quizplus · Accepted Answer

The purchasing power parity theory states that exchange rates will adjust in order to make the price of similar goods the same across different countries. Therefore, option A is correct as it states that the goods in different countries will be similar in price. Option C is incorrect as it states that the prices of different goods will be the same, which is not what the theory says. Options B and D are also incorrect as they do not accurately describe the theory of purchasing power parity.

The Theory of International Exchange That Holds That Exchange Rates