According to purchasing-power parity,if two countries have the same price level because they have the same prices for all goods and services,then which of the following would equal 1?
A)the real exchange rate,but not the nominal exchange rate
B)the nominal exchange rate,but not the real exchange rate
C)the real exchange rate and the nominal exchange rate
D)neither the real exchange rate nor the nominal exchange rate

Question

Quizplus · Accepted Answer

According to purchasing-power parity, the real exchange rate represents the relative price levels between two countries, taking into account inflation rates. The nominal exchange rate represents the exchange rate between two currencies. If two countries have the same price level, then both the real exchange rate and the nominal exchange rate would be equal to 1. Therefore, the correct choice is C, as both the real and nominal exchange rates would be equal to 1.

According to Purchasing-Power Parity,if Two Countries Have the Same Price