According to the Theory of Purchasing Power Parity, If the Domestic

question 55

Multiple Choice

According to the theory of purchasing power parity, if the domestic country's inflation rate decreases while the inflation rates in other countries remain unchanged, then

• A)the domestic currency will appreciate over time.
• B)the domestic currency will depreciate over time.
• C)the exchange rate of the domestic currency will remain unchanged but the exchange rates of other currencies will appreciate.
• D)the exchange rate of the domestic currency will fluctuate over time.
• E)nothing will occur because of the law of one price.

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