What does purchasing parity imply for the exchange rate?
A)that the real exchange rate is equal to one
B)that the nominal exchange rate is equal to one
C)that the real exchange rate is equal to the nominal exchange rate
D)that the real exchange rate is equal to the difference in inflation rates between the two countries

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) implies that the real exchange rate is equal to one, meaning that goods should cost the same in different countries when prices are converted into a common currency.

What Does Purchasing Parity Imply for the Exchange Rate