If the exchange rate were 100 yen equals one dollar, but purchasing power parity would require 110 for a dollar, then we would say the dollar is:
A) undervalued.
B) overvalued.
C) inflationary.
D) below parity.
E) deflationary.

Question

Quizplus · Accepted Answer

The dollar is undervalued because it is worth less in terms of purchasing power than it is worth in terms of the exchange rate.

If the Exchange Rate Were 100 Yen Equals One Dollar