If absolute purchasing power parity is achieved,then relative purchasing power parity:
A)is achieved only if inflation is not present.
B)cannot be achieved.
C)can only be achieved through government regulation of prices.
D)is achieved automatically.

Question

Quizplus · Accepted Answer

If absolute purchasing power parity (PPP) is achieved, then the relative purchasing power parity will also be achieved automatically. Relative PPP takes into consideration the percentage change in the exchange rate between two countries based on the inflation rate differential between them. When absolute PPP exists, the exchange rate adjusts to equalize the prices of a basket of goods in different countries, which ensures that relative PPP holds. Therefore, there is no need for government intervention, and inflation does not necessarily need to be absent for relative PPP to be achieved.

If Absolute Purchasing Power Parity Is Achieved,then Relative Purchasing Power