If purchasing power parity holds, one dollar will buy one unit of each foreign currency. • foreign currency equal to the price level of the United States divided by the price level of the country’s foreign currency. enough foreign currency to buy as many goods as in the United States. None if the above is implied by purchasing power parity
Answer)
Purchasing power parity is based on the law of one price which
stipulates that in the absence of transport and official cost
trade barriers, price of the same product in a different country
must be equal when expressed in the same currency. In terms of
equation means —
law of one price
Pi = PR*
where R = Pi/Pi*.
Therefore, option B is correct.
If purchasing power parity holds, a dollar will buy foreign currency
currency equal to US price level divided by foreign currency
price level of the currency country.
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