Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?

Question

Quizplus · Accepted Answer

Relative purchasing power parity (PPP) states that the change in the exchange rate between two countries should be equal to the difference in inflation rates. This is based on the idea that changes in prices will affect the prices of goods and services in different countries, which will then lead to changes in the exchange rate between those countries' currencies. Therefore, the correct answer is C, which refers to the difference in inflation rates of the two countries.

Relative Purchasing Power Parity Is Based on the Principle That