If purchasing-power parity holds, then the value of the a. real exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country’s price level. b. nominal exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country’s price level. c. real exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas. d. nominal exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas.

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02-01-2020
Business

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If purchasing-power parity holds, then the value of the a. real exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country’s price level. b. nominal exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country’s price level. c. real exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas. d. nominal exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas.

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agustinsr99 agustinsr99 · Answer 1 · 2020-01-05T17:25:12+01:00

Answer: The correct answer is "c. real exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas.".

Explanation: The real exchange rate of one currency with respect to another is the purchasing power of a currency after its conversion.

That is, the real exchange rate is a measure that indicates the purchasing power of one currency against another. Unlike the nominal exchange rate, it takes into account prices in the country to which the currency belongs.