The Purchasing Power Parity Theory Is a Reasonably Good Explanation

question 68

Multiple Choice

The purchasing power parity theory is a reasonably good explanation for nominal exchange rate determination:

• A)in the short run.
• B)in the long run.
• C)when there are significant volumes of non-traded goods and services.
• D)when there are fixed exchange rates.

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Definitions:

Pareto Efficient

A scenario in which it is impossible to improve the status of any individual or preference without adversely affecting at least one other individual or preference.

Negative Externalities

Costs suffered by a third party as a result of an economic transaction in which they were not involved, such as pollution.

Positive Externalities

Benefits that affect parties who did not choose to incur that benefit.

Pareto Optimal

A state of distributing resources that precludes the possibility of augmenting the status of any participant or preference without detriment to another.