If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, what is implied by purchasing-power parity?
A) P = e/P*
B) 1 = e/P*
C) e = P*/P
D) P/P*=1

Name: If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, what is implied by purchasing-power parity? A) P = e/P* B) 1 = e/P* C) e = P*/P D) P/P*=1
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Question

Quizplus · Accepted Answer

Purchasing-power parity implies that the nominal exchange rate (e) should equal the ratio of foreign prices (P*) to domestic prices (P), meaning e = P*/P.

If P = Domestic Prices, P* = Foreign Prices, and E