The Theory of Purchasing Power Parity Says

question 3

Multiple Choice

The theory of purchasing power parity says:

• A) the real exchange rate is always greater than one.
• B) a dollar should buy the same goods no matter where in the world you go.
• C) the dollar price of a basket of goods in the U.S. should equal the yen price of a basket of goods in Japan.
• D) the real exchange rate is always less than one.

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Definitions:

Standard Oil

A major American company founded by John D. Rockefeller and associates, dominating the oil industry and later broken up due to antitrust laws.

Petroleum Industry

The sector involved in the exploration, extraction, refining, transportation, and marketing of petroleum products.

Antitrust Policy

Government regulations designed to promote competition and prevent monopolies and other forms of market dominance that harm consumers.

Monopoly Power

The ability of a firm to control the market price and output of a product because it is the sole supplier in a market with high barriers to entry.