Question

# Purchasing power parity (PPP) is defined to be: a) The currency exchange rate between Country A...

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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