The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Purchasing power parity holds when the exchange rate is equal to the product of the foreign price level and the domestic price level.

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2
 
-Purchasing power parity holds when the exchange rate is equal to the product of the foreign price level and the domestic price level.

Quizplus · Accepted Answer

Purchasing Power Parity (PPP) holds when the exchange rate between two currencies is in equilibrium when their purchasing power at the domestic and foreign prices are equivalent, not the product of the price levels.

The Figure Given Below Depicts the Foreign Exchange Market for British