If the Price Level Goes Up in Country 1 by the Same

question 6

Multiple Choice

If the price level goes up in country 1 by the same rate it increases in country 2, what happens to the exchange rate according to PPP?

• A) There is no change
• B) Country 1's exchange rate depreciates
• C) Country 2's exchange rate depreciates
• D) PPP cannot tell us what happens to the exchange rate

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Definitions:

Securities

Financial instruments representing ownership (stocks), a debt agreement (bonds), or the rights to ownership (derivatives) that can be bought and sold.

Due Diligence Defense

A legal defense used in securities law, asserting that the defendants conducted a thorough investigation and did not find any misrepresentation or fraud.

Securities Act

Refers to the U.S. Securities Act of 1933, a federal piece of legislation enacted to regulate the securities industry and protect investors.

Effective Registration Date

The date on which a company's registration statement is declared effective by the Securities and Exchange Commission, allowing it to legally sell securities.