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In this case, students learn how, over a long period of time, the nominal value of a currency is related to the ratio of prices at home and abroad. They will search for a nominal exchange rate (e.g. the Japanese yen / U.S. dollar exchange rate), the consumer price levels in the domestic (the U.S. in this example) and in the foreign country (Japan in this example) and compute the ratio between the price levels. Students will plot this ratio as an approximation of the purchasing power parity (PPP) and identify periods when it does, and does not, inform the evolution of nominal exchange rates.Through peer instruction, students will address each of the following issues:1. Why does the purchasing power parity (PPP) increase or decrease over time?2. When does the purchasing power parity (PPP) inform the value of a currency better: in the short run or in the long run?3. What factors, besides price levels, influence the value of a currency?

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