Which of the Following Is a Drawback of the Purchasing

question 54

Multiple Choice

Which of the following is a drawback of the purchasing power parity theory?

• A)It does not appear to be a strong predictor of short-run movements in exchange rates covering time spans of five years.
• B)It does not explain change in exchange rates in terms of change in relative prices.
• C)It cannot explain when the demand of a particular currency would exceed its supply and vice versa.
• D)It does not address inflation in situations where governments control the rate of growth in money supply.
• E)It cannot predict exchange rate changes for countries with high rates of inflation and underdeveloped capital markets.

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