Which of the following supports the idea that the prices of similar products in different countries should be about the same?
A) Standard of living
B) Real growth rate
C) Purchasing power parity
D) Trade deficit
E) Balance of trade

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) is an economic theory that suggests that over time, exchange rates should adjust so that the price of similar products in different countries is approximately the same. This theory is based on the idea that in a globalized economy, consumers will seek out products that are cheaper in other countries, and this will drive down the demand for more expensive products in their home country. Eventually, this should result in a situation where the price of similar products is roughly the same across different countries, once you adjust for differences in currency values. Standard of living (A), real growth rate (B), trade deficit (D), and balance of trade (E) are not directly related to the idea that prices of similar products should be about the same.

Which of the Following Supports the Idea That the Prices