The Purchasing Power Parity Theory Is Not a Good Explanation

question 48

Multiple Choice

The purchasing power parity theory is not a good explanation of nominal exchange rate determination in the short run because:

• A)there is no evidence that low inflation is associated with less rapid nominal exchange rate depreciation.
• B)most nominal exchange rates are fixed and foreign exchange markets do not bring the supply and demand for currencies into equilibrium.
• C)most goods and services are traded internationally and are standardized.
• D)many goods and services are not traded internationally and not all internationally-traded goods are standardizeD.

---

Definitions:

Self-actualization

The act of accomplishing or reaching the full potential and skills inherent in a person, viewed as a fundamental desire or requirement in every human.

Esteem

The respect, admiration, or value that an individual receives from others or has for oneself.

Physiological

Relating to the functions and processes of the body and its systems, including the physical and chemical activities.

Social Cognitive Theory

A theory that emphasizes the importance of observational learning, imitation, and modeling in the acquisition of new behaviors.