Question

Purchasing Power Parity theory defines exchange rates in terms of power to purchase in two different countries.

True or False

Answer 1

True

In simple term purchasing power parity is very commonly used by many country for comparing different currencies through basket of good approach

it helps in finding the economic productivity and standard of living between the countries

It is given by the ratio of cost o any good in currency 12 the cost of good currency to

for example if we compare the two currencies let say United States dollar and Indian rupee then purchasing power parity for any good will give by the ratio of of value of good in currency US dollar to the value of ood in the currency Indian rupee