Purchasing-power parity implies that the nominal exchange rate given as foreign currency per unit of Canadian currency must rise if the price levels in which country rise?
A)the foreign country
B)Canada
C)both Canada and the foreign country
D)neither the foreign country nor Canada

Question

Quizplus · Accepted Answer

Purchasing power parity implies that the exchange rate must adjust to equate the prices of identical goods and services in different countries. Therefore, if the price levels in a foreign country rise, the foreign currency's purchasing power decreases relative to the Canadian currency, and the nominal exchange rate must rise to maintain parity.

Purchasing-Power Parity Implies That the Nominal Exchange Rate Given as Foreign