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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

Check whether the statement if one currency is overvalued, then other currencies are undervalued in a fixed exchange rate system.

Explanation

In a fixed exchange rate system, the exchange rate will be determined by the authority and it will not change according to the fluctuations in the demand for and supply of currencies.

The term “overvalued” means the exchange rate in terms of other currencies is larger than the equilibrium exchange rate...

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