If the domestic currency price of a commodity is greater than the domestic currency equivalent of the foreign price of the same commodity, then the derivation of PPP implies that:
A) the foreign price must rise
B) the exchange rate must rise
C) the foreign price must rise and/or the exchange rate must rise
D) the foreign currency must depreciate

Question

Quizplus · Accepted Answer

Purchasing Power Parity (PPP) theory suggests that in the long run, exchange rates should adjust so that the same good in different countries has the same price when expressed in a common currency. If the domestic price of a commodity is higher than its foreign currency equivalent, it implies that either the foreign price must increase or the exchange rate must adjust (or both) to equalize the prices when expressed in the same currency.

If the Domestic Currency Price of a Commodity Is Greater