If the Exchange Rate Is Equal to the Ratio of the Domestic

question 14

Multiple Choice

If the exchange rate is equal to the ratio of the domestic and foreign price indexes,

• A)absolute PPP holds.
• B)relative PPP holds.
• C)one currency is said to be overvalued.
• D)one currency is said to be undervalued.

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Definitions:

Test Statistic

A measurement derived from sample observations in a hypothesis test, used to determine if the null hypothesis should be discarded.

Population Mean

The average of all the values in a population, representing the central point around which the data points in the population are distributed.

Two-Tailed Test

A statistical test where the significance area is on both ends of the distribution, examining if a sample falls outside a specific value range on either side.

Null Hypothesis

A hypothesis used in statistics that proposes no significant difference or effect, serving as the default assumption to be tested against an alternative hypothesis.