Relative Purchasing Power Parity (RPPP) Is Different Than Purchasing Power

question 10

Multiple Choice

Relative purchasing power parity (RPPP) is different than purchasing power parity (PPP) because:

• A) PPP is based on the idea that LOP does not hold while it does for RPPP.
• B) under PPP exchange rates adjust so that the market basket of goods cost the same regardless of country while for RPPP the LOP does not hold.
• C) PPP is based on the idea that LOP does not hold while for RPPP the rate of change in the price level in one country relative the rate of change in the price level of another country determines the change in the exchange rate.
• D) for RPPP the rate of change in the price level in one country relative the rate of change in the price level of another country determines the change in the exchange rate while under PPP exchange rates adjust so that the market basket of goods cost the same regardless of country.

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