The Purchasing Power Parity Predicts That If US Price Level

question 10

Multiple Choice

The purchasing power parity predicts that if US price level falls relative to the Mexico price level,then

• A)Dollar value will rise relative to the peso
• B)Dollar value will fall relative to the peso
• C)There is no effect on either currency
• D)PPP predicts price level will normalize in the long-run

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Definitions:

Stock Dividend

A distribution of additional shares of a company to its shareholders instead of paying dividends in cash.

Stock Split

A corporate action by a company to divide its existing shares into multiple ones to boost the liquidity of the shares, often done when share prices are high.

Paid-In Capital

Total amount of cash and other assets paid into the corporation by stockholders in exchange for capital stock.

Stock Dividend

A company rewards its shareholders with extra shares, foregoing the option to distribute cash.