A Country's Currency That Strengthened Relative to Another Country's Currency

question 27

Multiple Choice

A country's currency that strengthened relative to another country's currency by more than that justified by the differential in inflation is said to be ________ in terms of PPP.

• A) overvalued
• B) overcompensating
• C) undervalued
• D) undercompensating

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Definitions:

Temporal Discounting

In decision making, the greater weight given to the present over the future.

Certainty Effect

A cognitive bias where people give greater weight to outcomes that are certain, compared to outcomes that are only probable.

Reactance

An inspired response to propositions, individuals, guidelines, or policies that challenge or remove certain freedoms of behavior.

Risk Aversion

In decision making, the greater weight given to possible losses than possible gains.