Question

This Question: 1 pt 15 of 20 (14 complete This Out: 20 piso According to the purchasing power party theory, relative price levels play an important role in determining exchange rates in the long run Suspose prices have been sing for in South Korean hend States, we then predict that O A The value of the won must decline OB. The value of the US dolar an the won will remain constant OC. The value of the US dollar must decline OD. The value of the the won must increase

Answer 1

Ans) Purchasing power parity states that the exchange rate between two countries should be equal to the ratio of price level of basket of goods and services.

If the prices in South Korea increase, it means that same good will become more costly than before. This means that value of won will decrease.

Option a.