Discuss the differences between Absolute PPP and Relative PPP. What w

Discuss the differences between Absolute PPP and Relative PPP.

What will be an ideal response?

ANSWER

Absolute PPP states that the exchange rate between two currencies equals the ratio of their price levels. Relative PPP states that the percentage change in the exchange rate between two currencies over a given period equals the difference between the inflation rates of those two currencies.

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