Fap is a small country whose currency is the Fip. Three years ago, the exchange rate was
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Fap is a small country whose currency is the Fip. Three years ago, the exchange rate was considered to be reflecting purchasing power parity (PPP). Since then, the country’s inflation has exceeded inflation in the other countries by about 5% per annum. The Fip exchange rate, however, remained broadly unchanged.
What would you have expected the Fip exchange rate to show if PPP prevailed?
Are Fips over-or undervalued, according to PPP?
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Given that the country Faps inflation has been consistently higher than that of other countries b...View the full answer
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