For Purchasing-Power Parity to Exist

question 73

Multiple Choice

For purchasing-power parity to exist,

• A) flows of currency in the trade account must be offset by flows of currency in the capital account.
• B) the nominal interest rate must be equal to the real interest rate in all countries.
• C) converting a sum of funds from one currency to another does not alter its purchasing power.
• D) a country's trade account must always be in balance.

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Definitions:

Agricultural Products

Items derived from farming or the cultivation of animals, including food, fiber, and other goods.

Surpluses

Occurs when the quantity of a good or service supplied exceeds the quantity demanded at a given price.

Binding Price Floor

A minimum price set by the government above the equilibrium price, leading to a surplus of goods or services in the market.

Supply And Demand

A model that explains how the interaction between product availability and consumers' desire determines the price of goods and services.