Given the Combination of PPP with Quantity Theory Equations, Which

question 14

Multiple Choice

Given the combination of PPP with quantity theory equations, which of the following statements is true?

• A)Everything else remaining unchanged, the price of the foreign currency (e) would be reduced by an increase in the relative size of the money supply in the domestic economy.
• B)Everything else remaining unchanged, the price of the foreign currency (e) would be raised by an increase in the relative size of foreign production.
• C)As long as the money supplies in the two countries are the same, the exchange rate will be equal to one
• D)The exchange rate would remain unaffected as long as the relative growth in productivity between the two nations remains constant, even if the relative money supply varies between the two economies.

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