Which of the following is a feature of the 'Purchasing Power Parity' theory in its absolute form?
A. Only relative changes in prices matter
B. The exchange rate between two currencies equals the ratio of the countries’ price levels
C. The exchange rate equals the interest differential
D. Exchange rates are determined only by trade balances
Answer: Option B
Solution (By JKSSB Mock Tests)
Absolute purchasing power parity states that the nominal exchange rate should equal the ratio of the domestic to the foreign price level so that a basket of goods costs the same in both countries.
Explanation:
Indian agriculture faces structural challenges including predominance of small and fragmented holdings, monsoon dependence, and low productivity in many regions.
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