Question

What is meant by purchasing power parity (ppp)?

a. when a currency is worth more in terms of other currencies.
b. when a country lets the value of its currency be determined in the exchange rate market.
c. an exchange rate policy where the government usually allows the exchange rate to be set by the market, but in some cases, especially if the exchange rate seems to be moving rapidly in one direction, the central bank will intervene.
d. the exchange rate that equalizes the prices of internationally traded goods across countries?

Answer 1

What is meant by Purchasing Power Parity (PPP)? D. The exchange rate that equalizes the prices of internationally traded goods across countries. The PPP is an economic theory that refers to a basket of goods approach, meaning, that when two or more countries price a basket of goods the same way, there is an equilibrium. Exchange rates in this situation are equal in all participating countries.