ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The nominal exchange rate at which a given basket of goods and services would cost the same in each country describes A. the international consumer price index.

Detailed explanation-2: -Purchasing power parity (PPP) is the idea that goods in one country will cost the same in another country, once their exchange rate is applied. According to this theory, two currencies are at par when a market basket of goods is valued the same in both countries.

Detailed explanation-3: -The nominal exchange rate E is defined as the number of units of the domestic currency that can purchase a unit of a given foreign currency. A decrease in this variable is termed nominal appreciation of the currency. (Under the fixed exchange rate regime, a downward adjustment of the rate Eis termed revaluation.)

Detailed explanation-4: -If the aggregate price level falls, the real exchange rate between the euro and the US dollar may increase, but it can also be reduced or remain the same. The correct answer is. d.

Detailed explanation-5: -The purchasing power parity (PPP) exchange rate is the exchange rate between. two currencies that would equate the two relevant national price levels if. expressed in a common currency at that rate, so that the purchasing power of a unit. of one currency would be the same in both economies.