The Empirical Evidence on Purchasing Power Parity Seems to Point

question 60

Multiple Choice

The empirical evidence on purchasing power parity seems to point out that:

• A) purchasing power parity can explain long run movements in exchange rates but does not hold up to scrutiny for short-run changes.
• B) purchasing power parity does a good job of explaining short-run movements in exchange rates, but does not hold up to scrutiny over the long run.
• C) purchasing power parity is a good theory for international trade, but is of little use in explaining exchange rate movements.
• D) inflation and a country's rate of currency appreciation are positively correlated.

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