The Theory That Exchange Rates Will Gradually Adjust to Offset

question 97

Multiple Choice

The theory that exchange rates will gradually adjust to offset differences in inflation rates between two countries is known as:

• A) purchasing power parity.
• B) the law of one exchange rate.
• C) the marginal rate adjustment theory.
• D) dynamic purchasing power parity.

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Definitions:

Motivation

The process that initiates, guides, and maintains goal-oriented behaviors, often driven by needs, desires, and goals.

Law of Effect

A psychological principle stating that behaviors followed by positive outcomes are likely to be repeated, while those followed by negative outcomes are less likely to be repeated.

Skinner

B.F. Skinner, an American psychologist and behaviorist, well-known for his work in operant conditioning and behavior analysis.

Pavlov

A psychologist known for his work on classical conditioning, demonstrating how stimuli can trigger conditioned responses.