A professional in India earns INR 2,50,000/- per month, while his/her counterpart in the UK earns GBP 5,000/- per month. The nominal exchange rate is given by: GBP 1.00 = INR 100. However, a McDonald’s burger costs GBP 3.00 in UK and INR 120.00 in India giving us an indication of the purchasing power parity between the two countries. Effectively, therefore:
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Balance of payments and exchange rates has come up 120 times in 7 exams since 2007.
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.
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Question from the JNU SIS 2019 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.