Under the theory of purchasing power parity, an increase in the U.S. price level of 10% relative to the Japanese price level will result in

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22-07-2022
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Under the theory of purchasing power parity, an increase in the U.S. price level of 10% relative to the Japanese price level will result in

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rafikiedu01 rafikiedu01 · Answer 1 · 2022-07-29T20:56:48+02:00

Under the purchasing power parity theory, an increase in the U.S. price level of 10% relative to the Japanese price level will result in a 10% appreciation of the yen.

Rising US price levels mean that the value of the dollar has fallen. It means there will be an appreciation of the yen.

Purchasing power parity theory means that the prices of goods after currency exchange will be the same in each country. For example, if the price of Coca-Cola is 100 pence in the UK and $ 1.50 in the US, then according to PPP theory (US price divided by UK price), the GBP / USD exchange rate will be 1.50.

PPP is a currency conversion rate that equalizes the purchasing power of different currencies by eliminating price level differences between countries.

The base commodity PPP for each economic pair can be calculated directly by taking the geometric mean of the relative prices of the two rice varieties. A side-by-side comparison. PPP between economy B and A can be calculated indirectly: PPP C/A × PPP B/C = PPP B/A.

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