If the theory of purchasing power parity is correct,which of the following statements should be true in the long run?
A) The percentage change in the nominal exchange rate equals the foreign inflation rate minus the domestic inflation rate.
B) The percentage change in the real exchange rate equals the foreign inflation rate plus the domestic inflation rate.
C) The percentage change in the nominal exchange rate equals the percentage change in the real exchange rate minus the sum of the foreign inflation rate and the domestic inflation rate.
D) The percentage change in the nominal exchange rate equals zero.

Question

Quizplus · Accepted Answer

According to the theory of purchasing power parity, in the long run, the percentage change in the nominal exchange rate should equal the difference between the foreign inflation rate and the domestic inflation rate.

If the Theory of Purchasing Power Parity Is Correct,which of the Following