Purchasing power parity (PPP) is defined to be:
a) The currency exchange rate between Country A and Country B
b) The price of a basket of goods in a particular country
c) The ratio of the price of a basket of goods in Country A to the price of the same
basket in Country B
d) None of the above
Ans. The correct answer is
A. The currency exchange rate between country A and country B : PPP is used to compare income levels of different countries.
For eg , A pair of sunglasses cost Rs 1500 in India but in USA it will cost $21 if the conversion of rupee into dollars is Rs 70.
Other options are
B. The price of a basket of goods in a particular country: It does not calculate the price of the goods in a country , hence the option is wrong.
c) The ratio of the price of a basket of goods in Country A to the price of the same basket in country B : It is not concerned with the ratio of prices of goods in one country to another hence this option is also wrong.
d) None of the above : Since there is a correct option so this option is wrong.
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