In the Long Run

question 10

Multiple Choice

In the long run

• A) exchange rates obey relative PPP when all disturbances occur in the output markets.
• B) exchange rates obey absolute PPP when all disturbances occur in the output markets.
• C) exchange rates are unlikely to obey relative PPP when all disturbances occur in the output markets.
• D) exchange rates are unlikely to obey relative PPP when all disturbances are monetary in nature.
• E) exchange rates obey absolute PPP when all disturbances are monetary in nature.

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Definitions:

Compounded

The process of calculating interest on both the initial principal and the accumulated interest from previous periods.

Principal

The original amount of money on which interest is calculated.

Composition

The act of combining two functions by applying one function to the result of another.

Function

A mathematical relation in which each element of a set of inputs is associated with exactly one element of a set of outputs.