If Purchasing Power Parity Holds,then If the Price of a Basket

question 78

Multiple Choice

If purchasing power parity holds,then if the price of a basket of goods in the U.S.rose from $1.000 to $1,200 and the price of the same basket in Poland rose from 6,400 Polish zloty to 8,000 zloty,then

• A)the nominal exchange rate would be unchanged and the real exchange rate would appreciate.
• B)the U.S.dollar would appreciate and the real exchange rate would stay the same.
• C)the nominal exchange rate would be unchanged and the real exchange rate would depreciate.
• D)the U.S.dollar would depreciate and the real exchange rate would be unchanged.

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