Relative purchasing power parity: a. states that identical items should cost the same regardless of the currency used to make the purchase. b. relates differences in inflation rates to differences in exchange rates. c. compares the real rate of return to the nominal rate of return. d. explains the differences in real rates across national boundaries. e. relates changes in exchange rates to changes in interest rates.

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13-12-2022
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Relative purchasing power parity: a. states that identical items should cost the same regardless of the currency used to make the purchase. b. relates differences in inflation rates to differences in exchange rates. c. compares the real rate of return to the nominal rate of return. d. explains the differences in real rates across national boundaries. e. relates changes in exchange rates to changes in interest rates.

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RioSengupta RioSengupta · Answer 1 · 2022-12-17T08:11:09+01:00

The notion of relative purchasing power parity holds that the exchange rates and inflation rates of two nations should equalize over time. Relative PPP is a dynamic variant of PPP that is an extension of absolute PPP. As a result, the right answer is (a), which states that identical items should cost the same regardless of the currency used to make the purchase.

What makes absolute and relative purchasing power parity different?

It is classified into two types: absolute purchasing power parity, which does not take inflation into account, and relative PPP, which does. PPP is used to compare countries' economic production and living standards. GDP is measured using purchasing power parity, which is an alternative to nominal GDP.

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