SSC
GENERAL ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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If purchasing power parity theory is true then
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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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Explanation:
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: -Purchasing power parity (PPP) is an economic theory of exchange rate determination. It states that the price levels between two countries should be equal. This means that goods in each country will cost the same once the currencies have been exchanged.
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