We can calculate the changes in the real exchange rate necessary for purchasing power parity by:
A) the share of nontraded goods divided by the share of traded goods.
B) the share of nontraded goods multiplied by the change in foreign traded productivity level relative to home.
C) nontraded goods minus domestic worker productivity.
D) wages earned in nontraded goods industries divided by wages earned in traded goods industries.

Question

Quizplus · Accepted Answer

The changes in the real exchange rate necessary for purchasing power parity can be calculated by taking into consideration the change in foreign traded productivity level relative to home. The share of nontraded goods, wages earned in nontraded goods industries, and nontraded goods minus domestic worker productivity do not provide information on the changes in real exchange rates necessary for PPP.

We Can Calculate the Changes in the Real Exchange Rate