In an Open Economy, the Law of One Price Implies

question 25

Multiple Choice

In an open economy, the law of one price implies that

• A) the domestic economy may have a comparative advantage in only half the goods it produces.
• B) perfect competition holds in all domestic markets.
• C) purchasing power parity should hold.
• D) the nominal exchange rate should equal one.
• E) the real exchange rate is greater than one.

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