The Purchasing Power Parity Theory

question 163

Multiple Choice

The purchasing power parity theory

• A)is more a predictor of a long-run tendency than of the day-to-day relationship between changes in the price level and the exchange rate
• B)predicts that exchange rates between two currencies will adjust in the long run to reflect the price level difference between two countries
• C)is more a predictor of a short-run phenomenon than of a long-run relationship between the price level and the exchange rate between two countries
• D)is helpful in explaining long-run trends, even though trade barriers and central bank intervention may hinder the usefulness of the theory
• E)tells us that a country's currency generally will appreciate if its inflation rate is lower than that of the rest of the world

---

Definitions:

U.S. Government Information

Data, facts, and other resources produced or maintained by agencies of the United States federal government.

Www.Usa.Gov

The official web portal of the United States federal government, providing access to government information and services.

Primary Sources

Primary Sources are original documents or firsthand accounts that are direct evidence or records of a historical event, person, or work of literature.

Secondary Sources

Secondary Sources are documents that provide analysis, commentary, or summaries of primary sources, often used in research.