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Purchasing Power Parity Means That the Expected Exchange Rate Is

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Purchasing power parity means that the expected exchange rate is such that the returns from investing in two nations are equal.


Definitions:

Nominal Exchange Rate

The rate at which the currency of one country can be exchanged for the currency of another country, not adjusted for inflation.

Net Exports

The value of a country's total exports minus its total imports, representing the net amount of a nation's goods and services traded with the rest of the world.

Appreciates

Refers to an increase in the value of an asset or currency relative to another.

Money Demand Curve

A graph showing the relationship between the quantity of money people want to hold and the interest rate.

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