Absolute purchasing power parity suggests that the real exchange rate between two countries will be equal to
A) 0.
B) 1.
C) 2.
D) 100.

Question

Quizplus · Accepted Answer

Absolute purchasing power parity suggests that the real exchange rate between two countries will be equal to 1, or the nominal exchange rate will adjust to reflect the difference in price levels between two countries. This implies that a unit of currency in one country will have the same purchasing power as a unit of currency in another country.

Absolute Purchasing Power Parity Suggests That the Real Exchange Rate