ECONOMICS
TECHNOLOGY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the price of a traded good should be the same everywhere around the world when converted to a common currency.
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exchange rates should be the same everywhere in the world.
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interest rates should equalise around the world.
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inflation rates should equalise around the world.
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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: -PPPs are the rates of currency conversion that equalize the purchasing power of different currencies by eliminating the differences in price levels between countries.
Detailed explanation-3: -Purchasing power parity (PPP) is a theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.
Detailed explanation-4: -Rates of Inflation and Currency Value The relative price of goods is linked to the exchange rate through the theory of purchasing power parity. As illustrated, PPP tells us that if a country has a relatively high inflation rate, then the value of its currency should decline.
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.