The real exchange rate between Canada and U.S. must be unity if LOOP is found held for all the common goods that are consumed in both countries. True or False?

Question

The real exchange rate between Canada and U.S. must be unity if LOOP is found held for all the common goods that are consumed in both countries. True or False?

Economyst, last time you said it is false, but if LOOP holds for each good in the basket, it will also hold for the price of the basket as a whole and since the real exchange rate is the relative price of the bastets. So will it be true?

Answer 1

Right. I was a bit confuse by your terminology. I missed the word "real" While the exchange rate may not be unity (one-to-one), the REAL exchange rate would be unity.