8

At the beginning of this year, the price of a basket of goods was A$150 in Australia and $125 in the US. The exchange rate was A$1.5/USD at the same time. The inflation rates for both countries are 5% in this year. If you have observed no change in the USD/AUD exchange rate, then your observation in this year is consistent with the forecast of: neither absolute PPP nor relative PPP. O relative PPP only. absolute PPP only. both absolute PPP and relative PPP. either absolute PPP or relative PPP