If Purchasing power parity (PPP) holds,
a. the real exchange rate increases
b. the real exchange rate decreases
c. the real exchange rate does not change
d. prices in the foreign country will increase
Answer
Option c
the real exchange rate does not change
the real exchange rate and the PPP is the same as the real exchange rate means the costs of the goods same in any currency as the PPP do.
If Purchasing power parity (PPP) holds, a. the real exchange rate increases b. the real exchange...
The International Fisher Effect (IFE), Purchasing Power Parity (PPP) and Interest Rate Parity (IRP) are three very important theories in international finance, each with its own predictions and implication. Which of the following is correct? IRP suggests that a change in interest rate differential will not change the currency's forward premium/discount. According to purchasing power parity (PPP), if a foreign country's inflation rate is below the inflation rate at home, home country consumers will increase their imports from the foreign...
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