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) trade equalization parity.
B) interest rate parity.
C) tariff application parity.
D) purchasing power parity.

Question

Quizplus · Accepted Answer

The concept described in the statement is Purchasing Power Parity (PPP), which states that the same bundle of goods should have the same cost in different countries, adjusted for the exchange rate. PPP determines the exchange rate between two currencies in the long run based on the relative inflation rates of the two countries. Therefore, the correct choice is D. The other options, trade equalization parity, interest rate parity, and tariff application parity, do not relate to the given concept.

If Two Currencies Allow for the Equal Value of Money