Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 31 - Part XI - Open-Economy Macroeconomics: Basic Concepts - Questions for Review - Page 679: 4

Answer

Purchasing power parity is a theory of exchange rates so that a unit of any currency should be able to purchase the same quantity of goods in all countries.

Work Step by Step

The logic behind purchasing power parity is that the good should sell for the same price in all countries. (However, this might not hold since other countries could supply or demand the good in question more or less than another country, thus affecting the price.)
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