The Purchasing Power Parity Theory of Exchange Rate Determination States

question 196

Multiple Choice

The purchasing power parity theory of exchange rate determination states that

• A)in the short run, rates will adjust to parity.
• B)in the long run, the rate reflects differences in price levels between the two countries.
• C)in the long run, a government agency sets the rate at parity.
• D)in the short run, the cost of labor really sets the exchange rate.

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