Explain why the real exchange rate never changes

Reference no: EM13803859

1. Explain why the real exchange rate never changes under the theory of purchasing power parity?

2. What governs the behavior of nominal exchange rates under PPP?

3. Suppose that inflation in the US is 4% while in the rest of the world it is 7%. Under PPP, how does E change over time? Does the dollar appreciate or depreciate?

Reference no: EM13803859

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