In an open economy, the law of one price implies that

Question

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The law of one price states that identical goods should have the same price across different markets. In an open economy, this means that goods should have the same price domestically and internationally. This is consistent with purchasing power parity (PPP), which suggests that the exchange rate should adjust to equalize the purchasing power of different currencies. Therefore, the law of one price implies that PPP should hold in an open economy.

In an Open Economy, the Law of One Price Implies