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

question 62

Multiple Choice

According to the theory of purchasing power parity, if the price level in France rises by 6 percent and the price level in the United States rises by 4 percent, then the dollar will

• A) appreciate by 2 percent against the euro in the short run.
• B) depreciate by 2 percent against the euro in the short run.
• C) appreciate by 2 percent against the euro in the long run.
• D) depreciate by 2 percent against the euro in the long run.

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Definitions:

Competitive Industry

An industry characterized by many firms producing similar goods or services, where no single firm has a dominant market share.

Market Price

The existing rate at which an asset or service is available for buying or selling in the market.

Demand Curve

A visual diagram showing the correlation between an item's price and the amount of it that consumers want to buy.

Profit Maximized

Profit maximized refers to a scenario where a firm achieves the highest possible profit from its operations, where marginal costs equal marginal revenue.