Answer to Question #119768 in Economics for surbhi Singh

Question

Suppose that price levels in Indonesia rise by 20% relative to prices levels in the Eurozone countries and that the purchasing power parity theory holds. How would this affect the value of the Indonesian rupiah relative to the euro?

Answer 1

If price levels in Indonesia rise by 20% relative to prices levels in the Eurozone countries, then the value of the Indonesian rupiah relative to the euro will decrease.