47. Which of the following theories proposes that one unit of US domestic currency will buy the same basket of goods and services anywhere in the world?
Answer: D
Purchasing power parity
Purchasing power parity (PPP) is the theory that one unit of US domestic currency will buy the same basket of goods and services anywhere in the world. This principle is used to compare the relative value of currencies based on the cost of goods in different countries.
A) Parity distribution method
The parity distribution method is not a recognized economic theory related to currency valuation or purchasing power. It does not address how currencies can be compared based on the goods and services they can purchase, making it an incorrect choice.
B) The law of parity demand
The law of parity demand is not a widely accepted economic theory. It does not specifically relate to the concept of comparing purchasing power across different currencies, which is the central idea of purchasing power parity. Therefore, this option is incorrect.
C) International parity option
The international parity option does not accurately describe a theory related to purchasing power across different countries. This term does not represent a standard economic principle and lacks the framework that purchasing power parity provides, making it an incorrect answer.
D) Purchasing power parity
Purchasing power parity is the correct choice because it directly asserts that a single unit of currency should have the same purchasing power globally, allowing for the comparison of economic value across different nations based on the cost of a specific basket of goods and services.
Conclusion
Purchasing power parity is the definitive answer as it encapsulates the idea that currency value can be measured by its ability to buy the same goods globally. The other options fail to represent a valid economic principle related to currency comparison, confirming that they do not address the core concept of the question.