According to the absolute PPP theory,which of the following would occur if the price level in the US decreases relative to the UK,and before this increase the dollar was in an exchange rate equilibrium with the sterling?

Question

Quizplus · Accepted Answer

According to the absolute Purchasing Power Parity (PPP) theory, if the price level in the US decreases relative to the UK, the US dollar will appreciate relative to the sterling. This is because lower prices in the US make its goods and services cheaper compared to those in the UK, increasing demand for dollars to buy these cheaper US goods and services.

According to the Absolute PPP Theory,which of the Following Would