The Purchasing Power Parity Predicts That If US Price Level

question 28

Multiple Choice

The purchasing power parity predicts that if US price level rises 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:

Income Tax

A tax levied by governments on individuals or entities based on their income or profits, varying according to earnings levels.

Corporation Income Tax

A tax imposed on the net income of a corporation, calculated based on the company's profit.

Capital Flow

The movement of money for the purpose of investment, trade, or business production, either within a country or internationally.

Tax Shifting

The transfer of the burden of a tax from the entity legally responsible for paying it to another party, often consumers, through higher prices.