explain why the exchange rate model based on ppp, International Economics

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explain why the exchange rate model based on ppp

Explain why the exchange rate model based on PPP is a long-run theory.

Answer: PPP theory is a financial approach to the exchange rate. It is a long-run theory for the reason that it doesn't allow for price rigidities. It assumes that prices are able to adjust right away to maintain full employment as well as PPP.

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