New 55% Off on All Courses - Enroll Now! Click Here

    Question

    The theory which states that exchange rates between

    currencies are in equilibrium when their purchasing power is the same in each of the two countries, is 
    A The Equilibrium Theory Correct Answer Incorrect Answer
    B The Price Theory Correct Answer Incorrect Answer
    C Purchasing Power Parity Correct Answer Incorrect Answer
    D The Theory of Differential Pricing Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    The alternative to using market exchange rates is to use purchasing power parities (PPPs). The purchasing power of a currency refers to the quantity of the currency needed to purchase a given unit of a good, or common basket of goods and services.

    Practice Next