Relative purchasing-power parity theory postulates that the equilibrium exchange rate is equal to the ratio of the price levels in the two nations.

Question

Quizplus · Accepted Answer

Relative purchasing-power parity suggests that the rate of change in the exchange rate between two currencies over time is equal to the difference in their inflation rates, not the ratio of their price levels.

Relative Purchasing-Power Parity Theory Postulates That the Equilibrium Exchange Rate