Which of the Following Events Would Be Consistent with Purchasing-Power

question 168

Multiple Choice

Which of the following events would be consistent with purchasing-power parity?

• A) The price level in the United States rises more rapidly than that in Ireland and the real exchange rate defined as Irish goods per unit of U.S.goods stays the same.
• B) The money supply in the United States rises more rapidly than in Egypt and the nominal exchange rate defined as Egyptian pounds per dollar falls.
• C) Earl,a worldwide traveler,looks at exchange rates and worldwide breakfast prices one morning and finds that whatever country he decides to go to he can convert $5 into enough local currency to buy the same breakfast.
• D) All of the above are correct.