When the rate of appreciation of the nominal exchange rate equals the foreign inflation rate minus the domestic inflation rate,we say there is
A)relative purchasing power parity.
B)purchasing power parity.
C)a Phillips curve.
D)an aggregate supply shock.

Question

Quizplus · Accepted Answer

This is the definition of relative purchasing power parity, which states that the change in the exchange rate reflects the differences in inflation rates between two countries.

When the Rate of Appreciation of the Nominal Exchange Rate