Final answer:
Purchasing-power parity implies that changes in saving or investment do not affect the real exchange rate and that changes in the nominal exchange rate are due to alterations in price levels.
Step-by-step explanation:
Purchasing-power parity (PPP) has two important implications for an economy involving the relationship between saving or investment changes, and the nominal and real exchange rates. The first implication is that, under PPP, because the net-exports schedule is flat, changes in saving or investment do not influence the real exchange rate. The second implication is that, because the real exchange rate is held constant by PPP, all changes in the nominal exchange rate result from changes in price levels.
PPP suggests that over the long term, exchange rates should align with the currency's buying power in terms of internationally traded goods like oil or computers. This notion operates under the universal generalization that trade does not affect the natural level of employment or real wages in the long run. Therefore, with a fixed real exchange rate influenced by PPP, changes in nominal exchange rates must be attributed to variations in the price levels between countries.