Question

Purchasing-power parity theory does not hold at all times because select one:

a. many goods are not easily transported.
b. the same goods produced in different countries may be imperfect substitutes for each other.
c. both a and b are correct.
d. prices are different across countries.

Answer 1

The answer would be letter C. This theory tells us that exchange or conversation rates between currencies are in symmetry when their purchasing power is the similar in each of the two republics. In other words, the outlay on a like commodity must be same in both currencies when accounted for exchange rate.