If two currencies allow for the equal value of money so that the same bundle of goods cost the same in two countries, there is
A) purchasing power parity.
B) interest rate parity.
C) tariff application parity.
D) trade equalization parity.

Question

Quizplus · Accepted Answer

This scenario describes purchasing power parity, which occurs when the exchange rate between two currencies is such that the same basket of goods costs the same in both countries. This means that there is no advantage to buying goods in one country over the other based purely on price, as the value of the currencies are equal. Interest rate parity refers to the equalization of returns on investments in different currencies, tariff application parity is not a commonly used term, and trade equalization parity is not a recognized economic concept.

If Two Currencies Allow for the Equal Value of Money