Question

According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices

in the United Kingdom, then the
a. real exchange rate rises.
b. nominal exchange rate rises.
c. real exchange rate falls.
d. nominal exchange rate falls.

Answer 1

d. nominal exchange rate falls.

Step-by-step explanation:

If US prices increase by a greater percentage than UK prices, then the nominal exchange rate related to the UK currency will fall. This type of exchange rate refers to the price of the financial asset and represents the cost of one currency in relation to another, so if the price of American products rises more than the price of products in the United Kingdom, the value of the British currency becomes devalued in relation to the dollar, due to the nominal exchange rate.