Solution Summary: The author explains that exchange rate Option ‘c’ is the correct answer. The purchasing power parity theorem states that the real buying power of money should be the same.
Definition Definition Value of one unit of currency in terms of goods and services. Purchasing power refers to the ability of money to purchase goods and services at a particular point of time. As price levels in the economy increase, the purchasing power of one unit of currency decreases and vice versa.
