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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

What does the purchasing power parity theory say? Give an example to illustrate your answer.

To determine

Purchasing power parity theory with an example.

Explanation

Purchasing power parity is a theory which explains that the exchange rate of two currencies will be equal to the ratio of the respective currencies’ purchasing power. This can be explained with the help of an example. Suppose the price of the commodity in Country U’s is $2 and that in Continent E is 1 Euro. Thus, the exchange rate will be $1 = 0...

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