In the long run,the nominal exchange rate:

Question

Quizplus · Accepted Answer

In the long run, the nominal exchange rate is determined by the relative price levels in the two economies. This is known as the purchasing power parity (PPP) theory. According to PPP, the nominal exchange rate between two countries should reflect the relative price levels of a similar basket of goods in those countries. Therefore, the nominal exchange rate will adjust to maintain the same purchasing power in both countries.

In the Long Run,the Nominal Exchange Rate