Question

The cost of a basket of goods in the US is $10. The cost of the same goods in India is 700 Rupees.

The Purchasing Power Parity would state that the exchange rate is

1. $1 = 10 Rupees
2. $1 = 700 Rupees
3. $1 = 70 Rupees
4. $1= 0.014 Rupees

Answer 1

The correct exchange rate according to Purchasing Power Parity is $1 = 70 Rupees.

Step-by-step explanation:

The Purchasing Power Parity (PPP) between two currencies is a measure of the relative value of the currencies based on the cost of a basket of goods in each country. In this case, the cost of a basket of goods in the US is $10 and 700 Rupees in India. To calculate the exchange rate, we divide the cost in one currency by the cost in the other currency. Therefore, the correct answer would be $1 = 70 Rupees