Answered: The purchasing power parity hypothesis…

The purchasing power parity hypothesis implies that an increase in inflation in one country relative to another will over a long period of time

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter20: International Finance

Section: Chapter Questions

Problem 4QFR

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Question

The purchasing power parity hypothesis implies that an increase in inflation in one country relative to another will over a long period of time

Definition Definition Value of one unit of currency in terms of goods and services. Purchasing power refers to the ability of money to purchase goods and services at a particular point of time. As price levels in the economy increase, the purchasing power of one unit of currency decreases and vice versa.

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