To Express the PPP Theory in Symbols, Let P$ Be

Multiple Choice

To express the PPP theory in symbols, let P$ be the U.S. dollar price of a basket of particular goods and P¥ be the price of the same basket of goods in Japanese yen. What does the purchasing power parity (PPP) theory predict to be the equivalent of the dollar/yen exchange rate, E$/¥?

A) E$/¥ = (1 + P¥) ÷ P$
B) E$/¥ = (1 + P$) ÷ P¥
C) E$/¥ = P¥ ÷ P$
D) E$/¥ = P$ ÷ P¥
E) E$/¥ = (1 + P$) ÷ (1 + P¥)