If Purchasing-Power Parity Holds, Then the Value of the

question 163

Multiple Choice

If purchasing-power parity holds, then the value of the

• A)real exchange rate is equal to one.
• B)nominal exchange rate is equal to one.
• C)real exchange rate is equal to the nominal exchange rate.
• D)real exchange rate is equal to the difference in inflation rates between the two countries.

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Definitions:

Periodic system

An inventory accounting system in which updates to inventory levels and cost of goods sold are made at the end of an accounting period rather than after each sale.

Ending inventory

The aggregate worth of products ready for sale at the close of an accounting period, determined by summing up acquisitions to the initial inventory and deducting the cost of goods sold.

Cost flow assumption

An accounting method that determines how costs are allocated to inventory and cost of goods sold, such as FIFO, LIFO, or weighted average.

Gross profit

The difference between sales revenue and the cost of goods sold before accounting for operating expenses, interest, taxes, etc.