ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Purchasing Power Parity
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CPI Currency Rate
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Nominal Exchange Rate
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Aggregate Exchange Rate
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Detailed explanation-1: -Purchasing power parity (PPP) is the idea that goods in one country will cost the same in another country, once their exchange rate is applied. According to this theory, two currencies are at par when a market basket of goods is valued the same in both countries.
Detailed explanation-2: -The purchasing power parity theory indicates that the nominal exchange rate between two countries’ currencies is equal to the proportion of the countries’ price level.
Detailed explanation-3: -THE PURCHASING POWER PARITY The purchasing power parity theory was propounded by Professor Gustav Cassel of Sweden. According to this theory, rate of exchange between two countries depends upon the relative purchasing power of their respective currencies.
Detailed explanation-4: -Summary. The purchasing power parity (PPP) exchange rate is the exchange rate between two currencies which would equate the two relevant national price levels if expressed in a common currency at that rate, so that the purchasing power of a unit of one currency would be the same in both economies.
Detailed explanation-5: -Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries. 2. In terms of PPP dollars, India is the sixth-largest economy in the world.