Chapter 10.2, Problem 2QS2

Summary Introduction

To Determine:

A Unique aspect of purchasing power parity in the context of exchange rates is that it is only useful when applied to what?

Introduction:

Through the approach of ‘basket of good’ the economic theory of purchasing power parity compares different country’s currencies. With respect to exchange rates when basket of goods is priced equally in both countries the currencies are said to be in equilibrium or at par.