According to Purchasing-Power Parity What Should the Nominal Exchange Rate

question 80

Multiple Choice

According to purchasing-power parity what should the nominal exchange rate between the U.S.and another country be equal to?

• A)1
• B)the real exchange rate between the U.S.and that country
• C)the price level in the U.S.divided by the price level in the other country
• D)the price level in the other country divided by the price level in the U.S.

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Definitions:

Absolute Advantage

The ability of an individual, company, or country to produce more of a good or service with a given amount of resources than competitors.

Comparative Advantage

The ability of an entity to produce a good or service at a lower opportunity cost than others, leading to trade benefits.

Terms Of Trade

The ratio of a country's export prices to its import prices, affecting the volume of goods a country can import for a given level of exports.

Exchange Rate

The value of one currency expressed in terms of another, determining how much of one currency can be exchanged for another.