Relative purchasing power parity occurs when
A)purchasing power parity holds between every two countries.
B)purchasing power parity only holds in recessions.
C)the nominal exchange rate is constant.
D)the real exchange rate is constant.

Question

Quizplus · Accepted Answer

Relative purchasing power parity occurs when the real exchange rate between two countries is constant. This means that changes in the nominal exchange rate are offset by changes in relative price levels between the two countries. Therefore, goods should have the same real value in both countries after accounting for differences in relative price levels.

Relative Purchasing Power Parity Occurs When