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Q. What are the predictions of the PPP theory with regard to the real exchange rates?
Answer: The real exchange rate among two countries is a broad summary measure of the prices of one country's goods and services relative to the other's. PPP predicts that the actual exchange rate never permanently changes which is different from nominal exchange rates that deal with the relative price of two currencies
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Q. Explain why the exchange rate model based on PPP is a long-run theory. Answer: PPP theory is a financial approach to the exchange rate. It is a long-run theory for
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