According to purchasing-power parity,if prices in Canada increase by a larger percentage than prices in Algeria,how does the exchange rate change?
A) The real exchange rate,defined as Algerian goods per unit of Canadian goods,rises.
B) The real exchange rate,defined as Algerian goods per unit of Canadian goods,falls.
C) The nominal exchange rate,defined as Algerian currency per dollar,rises.
D) The nominal exchange rate,defined as Algerian currency per dollar,falls.

Question

Quizplus · Accepted Answer

According to purchasing-power parity, if prices in Canada increase by a larger percentage than prices in Algeria, then the Canadian dollar becomes relatively weaker and the Algerian dinar becomes relatively stronger. Therefore, the nominal exchange rate, which represents the value of one currency in terms of another currency, falls as the Algerian currency becomes more expensive relative to the Canadian dollar.

According to Purchasing-Power Parity,if Prices in Canada Increase by a Larger