The Theory of Purchasing Power Parity States That Exchange Rates

question 111

Multiple Choice

The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in

• A)the trade balances of the two countries.
• B)the current account balances of the two countries.
• C)fiscal policies of the two countries.
• D)the price levels of the two countries.

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Definitions:

Damage

Harm or injury to property, persons, or the economy, which can be quantified in financial terms and may require compensation.

Supply-Side Market Failure

A situation where the production of a good or service results in unaccounted external costs, leading to overproduction and inefficiencies in the market.

Net Benefit

The total positive outcomes minus the total costs associated with a decision or action.

Society's Perspective

A viewpoint considering the collective interests, welfare, and impact on the wider community or society as a whole.