The Relative Purchasing Power Parity Theory Postulates That

question 22

Multiple Choice

The relative purchasing power parity theory postulates that:

• A) The equilibrium exchange rate is equal to the ratio of the price level in the two nations
• B) the change in the exchange rate over a period of time should be proportional to the relative change in the price level in the two nations over the same time period
• C) the change in the exchange rate over a period of time should be proportional to the absolute change in the price level in the two nations over the same time period
• D) the exchange rate at a period of time should be proportional to the relative prices in the two nations

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Definitions:

Descriptive Norm

Socially accepted behaviors that individuals are expected to conform to in a specific context, based on the observed actions of others.

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Pluralistic Ignorance

Pluralistic ignorance describes a situation where a majority of group members privately reject a norm, but assume incorrectly that most others accept it.

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