Final answer:
False, the term dollar when used in the context of relative prices may refer to the value represented in a currency, not just physical currency. In exchange rates and economic analysis, dollars are often a unit of measure for the value of one currency in terms of another.
Step-by-step explanation:
False. When relative prices are measured in terms of dollars, the term dollar does not exclusively refer to physical currency. In many economic contexts, including the measurement of exchange rates and prices, the term 'dollar' can refer to monetary units in a broader sense, such as the value or purchasing power of money. For example, in the context of international finance, prices such as exchange rates are determined by supply and demand in markets, where the price of one currency is expressed in units of another currency.
In situations where prices and values need to be compared internationally, 'international dollars' can be used. An international dollar has the same purchasing power as a U.S. dollar within the United States, allowing for more accurate comparisons between the economic conditions of different countries. This concept, among others, is crucial when analyzing the foreign exchange market, where currencies are traded and their values fluctuate based on numerous economic factors, including relative inflation rates, demand, and supply.