Final answer:
No, if purchasing-power parity holds, the real exchange rate is not always equal to 1.
Step-by-step explanation:
No, if purchasing-power parity holds, the real exchange rate is not always equal to 1. Purchasing power parity (PPP) is a theory that suggests that the exchange rate between two currencies should be equal to the ratio of their purchasing powers. This means that if a basket of goods costs $100 in one country and the exchange rate is 1:2, then the exchange rate should be $2 for every unit of the other currency, maintaining the purchasing power parity. However, in reality, it is unlikely for purchasing-power parity to hold perfectly due to several factors, such as transaction costs, trade barriers, and market inefficiencies.