The Theory of Purchasing Power Parity

question 83

Multiple Choice

The theory of purchasing power parity:

• A) contradicts the law of one price.
• B) explains exchange rate movements in the short run, while the law of one price explains exchange rate movements over the long run.
• C) assumes away inflation to have any validity.
• D) extends the law of one price to a basket of goods.

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Definitions:

CS

Conditional Stimulus; a previously neutral stimulus that, after being paired with an unconditioned stimulus, begins to elicit a conditioned response.

Associative Strength

The measure of how strongly two ideas or experiences are connected in the mind, influencing the ability to learn associations.

Training Trial

An instance or episode during which a learning process is implemented, aimed at teaching a specific skill or behavior.

Rescorla And Wagner

A model proposing that the strength of learning is determined by the extent to which a conditioned stimulus (CS) is surprising or unexpected, pertaining to classical conditioning.