Which of the Following Describes the Purchasing Power Parity Theory

question 154

Multiple Choice

Which of the following describes the purchasing power parity theory of exchange rate determination?

• A) The exchange rate will adjust in the long run until the interest rate is roughly the same in both countries.
• B) The exchange rate will adjust in the long run until real GDP per capita is roughly the same in both countries.
• C) The exchange rate will adjust in the long run until the average price of goods is roughly the same in both countries.
• D) The exchange rate will adjust in the short run until the average price of goods is roughly the same in both countries.
• E) Prices adjust in the short run until the exchange rate is roughly the same in both countries.

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