The Purchasing Power Parity Theory Is Not a Good Explanation

question 67

Multiple Choice

The purchasing power parity theory is not a good explanation of how nominal exchange rates are determined in the short run because:

• A)there is no evidence that low inflation is associated with less rapid nominal exchange rate depreciation.
• B)most nominal exchange rates are fixed and foreign exchange markets do not bring the supply and demand for currencies into equilibrium.
• C)most goods and services are traded internationally and are standardized.
• D)many goods and services are not traded internationally and not all internationally-traded goods are standardized.

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Definitions:

Antiinfluenza Drug

A medication designed to treat or prevent the influenza virus infection by inhibiting its replication cycle.

Functional Group

A specific group of atoms within a molecule that is responsible for the characteristic chemical reactions of that molecule.

Dopamine

A neurotransmitter involved in controlling movement and the reward and pleasure centers in the brain.

Functional Group

Defined conglomerates of atoms inside molecules that are pivotal for the molecules’ typical chemical processes.