According to purchasing-power parity theory, the real exchange rate should equal the nominal exchange rate.

Question

Quizplus · Accepted Answer

According to purchasing-power parity theory, the real exchange rate equals the nominal exchange rate multiplied by the ratio of the price level in the foreign country to the price level in the home country. Therefore, the real exchange rate can differ from the nominal exchange rate if there are differences in price levels between the two countries.

According to Purchasing-Power Parity Theory, the Real Exchange Rate Should