According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?
A)The real exchange rate, but not the nominal exchange rate.
B)The nominal exchange rate, but not the real exchange rate.
C)The real exchange rate and the nominal exchange rate.
D)Neither the real exchange rate nor the nominal exchange rate.

Question

Quizplus · Accepted Answer

According to purchasing-power parity (PPP), the nominal exchange rate equals the ratio of the foreign price level to the domestic price level, ensuring that a unit of currency has the same purchasing power in different countries.

According to Purchasing-Power Parity, Which of the Following Necessarily Equals