The percentage change in the exchange rate should be equal to the difference between the percentage change in price levels is a statement of:
A) the consumer price index.
B) absolute purchasing power parity.
C) relative purchasing power parity.
D) the law of one price.
E) inflation parity.

Question

Quizplus · Accepted Answer

Relative purchasing power parity holds that the rate of change in the price levels between two countries over a period is reflected in the change in the exchange rate between their currencies. This concept suggests that the exchange rate adjustment is necessary to maintain the purchasing power of currencies when inflation rates differ.

The Percentage Change in the Exchange Rate Should Be Equal