If PPP holds ........

Economics- Phase (I & II) Balance of Payment and Foreign Exchange Markets

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If PPP holds

The nominal exchange rate will not change.

The real exchange rate will not change.

Both real and nominal exchange rates will not change.

Both real and nominal exchange will move together

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Explanation:

There are two senses in which the PPP hypothesis might hold. Absolute purchasing power parity holds when the purchasing power of a unit of currency is exactly equal in the domestic economy and in a foreign economy, once it is converted into foreign currency at the market exchange rate.