If People Expect Relative PPP to Hold

question 1

Multiple Choice

If people expect relative PPP to hold

• A) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected, in the United States and Europe, respectively, over the relevant horizon.
• B) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected in Europe and the United States, respectively.
• C) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected, over the relevant horizon, in the United States and Europe, respectively, in the short run.
• D) the difference between the interest rates offered by dollar and euro deposits will be above the difference between the inflation rates expected, over the relevant horizon, in the United States and Europe, respectively.
• E) the difference between the interest rates offered by dollar and euro deposits will be below the difference between the inflation rates expected, over the relevant horizon, in the United States and Europe, respectively.

---

Definitions:

Biguanides

A class of medications primarily used to lower blood sugar levels in patients with type 2 diabetes; also found in disinfectants and antiseptics.

Thiazolidinediones

A class of medications used to lower blood glucose levels in the treatment of type 2 diabetes; they work by increasing insulin sensitivity in fat and muscle cells.

Type 1 Diabetes

A chronic condition in which the pancreas produces little or no insulin due to the immune system attacking and destroying insulin-producing cells.