Question

Imagine that the price level abroad is twice as high as in home (‘our’) country. mark correct statements.(several possible)

(a) The (absolute) purchasing power parity equals 1.
(b) The (absolute) purchasing power parity equals 1/2.
(c) If E = 0.75 the home currency is undervalued.
(d) If the home currency is undervalued it means that the same goods, on average, have higher prices abroad than in our country.

Answer 1

(b) The (absolute) purchasing power parity equals 1/2.
(d) If the home currency is undervalued it means that the same goods, on average, have higher prices abroad than in our country.