If Purchasing Power Parity Holds, Then Which of the Following

question 45

Multiple Choice

If purchasing power parity holds, then which of the following statements must be true?

• A)The currencies of countries with lower average inflation rates should appreciate relative to the currencies of other countries.
• B)A country that has a lower exchange rate relative to other currencies must also have a lower rate of inflation.
• C)The currencies of countries with higher average inflation rates should appreciate relative to the currencies of other countries.
• D)A country that has a higher exchange rate relative to other currencies must also have a higher rate of inflation.

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