If the Purchasing Power of a Canadian Dollar Is Less

question 197

Multiple Choice

If the purchasing power of a Canadian dollar is less than the purchasing power of the euro, purchasing power parity would predict that

• A)in the short run, exchange rates will move to equalize the purchasing power of the Canadian dollar and the euro.
• B)in the long run, exchange rates will move to equalize the purchasing power of the Canadian dollar and the euro.
• C)in the long run, interest rates will move to equalize the purchasing power of the Canadian dollar and the euro.
• D)in the short run, interest rates will move to equalize the purchasing power of the Canadian dollar and the euro.
• E)in the long run, the Canadian economy will grow more quickly than the eurozone economy.

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Definitions:

Equilibrium Price

The market price at which the supply of an item matches its demand, leading to economic stability in the market.

Supply Curve

An illustrative diagram depicting the link between the cost of an item and the volume merchants are ready to provide.

Supply Curve

A graphical representation showing the correlation between the price of a good or service and the amount that suppliers are willing to produce and sell at each price level.

Quantity Demanded

The aggregate quantity of a product or service that buyers are ready and able to buy at a specific price point during a certain timeframe.