Question

PPP is: a. a theory that tells us that exchange rates between currencies are in equilibrium when their purchasing power is the same in both countries. b. GDP divided by the exchange rate. c. a measure of income inequality. d. a measure of infant mortality in developing countries.

Answer 1

A. a theory that tells us that exchange rates between currencies are in equilibrium when their purchasing power is the same in both countries.

Step-by-step explanation:

PPP allows the comparison of price of a basket of goods between countries. An exchange rate determined by PPP is the amount of money to buy the same products from 2 different countries, which will be in equilibrium when this rate makes no different for buying the same basket of goods.