If the PPP is satisfied then:
A) the nominal exchange rate stays constant over time.
B) the nominal exchange rate may depreciate or appreciate over time but the rate of this depreciation/appreciation stays constant.
C) SP*/P = 1, where S = nominal exchange rate, P* = foreign country price level, P = home country price level.
D) SP*/P = constant (not necessary 1), where S = nominal exchange rate, P* = foreign country price level, P = home country price level.

Question

Quizplus · Accepted Answer

Purchasing Power Parity (PPP) implies that the nominal exchange rate (S) adjusts such that the price levels between two countries are equal when expressed in a common currency, i.e., SP*/P = 1.

If the PPP Is Satisfied Then