Skip to content
We use only essential cookies to keep you signed in and remember your preferences. See our Cookie Policy.
TestStop
MocksPracticeResourcesIndiaBlogPricing
Sign in
Questions › JNU › JNU SIS 2013 › Q24
4 marks, −1International Economics › Balance of payments and exchange rates › Purchasing power parityHardabout 2 min

JNU SIS 2013 Question 24: Balance of payments and exchange rates

There are two countries AAA and BBB with their currencies denoted as 'A$' and 'B$' respectively. Their nominal exchange rates in terms of US Dollars (USD) are as follows :

A$ 50 = USD 1; B$ 1 = USD 1·5

The nominal prices of petrol per litre in the two countries are A$ 75 per litre and B$ 1 per litre respectively. It is reported that in purchasing power parity (PPP) terms, petrol prices are three times higher in country AAA than in country BBB. Compare a resident of country AAA earning A$ 50,000 per month with a resident of country BBB earning B$ 2,000 per month. In PPP terms

Tap an option to check your answer.

Answer and worked solution

Checking your account…

Plain-text version

There are two countries A and B with their currencies denoted as 'A$' and 'B$' respectively. Their nominal exchange rates in terms of US Dollars (USD) are as follows: A$ 50 = USD 1; B$ 1 = USD 1·5 The nominal prices of petrol per litre in the two countries are A$ 75 per litre and B$ 1 per litre respectively. It is reported that in purchasing power parity (PPP) terms, petrol prices are three times higher in country A than in country B. Compare a resident of country A earning A$ 50,000 per month with a resident of country B earning B$ 2,000 per month. In PPP terms (A) resident of country A is better off than resident of country B (B) resident of country A is at par with resident of country B (C) resident of country A is worse off than resident of country B (D) Cannot say

Balance of payments and exchange rates has come up 120 times in 7 exams since 2007.

What this question tests

This question is on Purchasing power parity, part of Balance of payments and exchange rates in International Economics.

Whether exchange rates adjust to equalise price levels.

TestStop has 12 past-paper questions on this subtopic; the nearest in year are below.

  • IIT JAM 2022 · Q50Big Mac prices (local currency) and market exchange rates (local currency per USD) in January 2019: US 5.58…
Practise Balance of payments and exchange ratesMore on Purchasing power parity

Similar questions from other papers

  • CUET-PG 2026 · Q11When there is no change in central banks holding of international reserves, a country's:
  • GATE 2026 · Q55Nominal exchange rate is defined as the amount of domestic currency that can fetch one unit of foreign currency. Suppose that there is a fall in nominal exchange rate.…
  • IIT JAM 2026 · Q34Identify the CORRECT statement(s) in the context of an open economy.
  • UGC-NET 2026 · Q35Devaluation of Currency has the following effects: A. Changes relative domestic price B. Increases the tax value of domestic currency C. Increases the competitiveness…
  • CUET-PG 2025 · Q45Expenditure towards the maintenance of embassies and diplomatic missions are included in which of the following account of the balance of payments.

Question from the JNU SIS 2013 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.