Which of the Following Is True of the Purchasing Power

question 39

Multiple Choice

Which of the following is true of the purchasing power parity (PPP) theory?

• A)A country's "nominal" interest rate (i)is the sum of the required "real" rate of interest (r)and the expected rate of inflation over the period for which the funds are to be lent (I).
• B)The exchange rate will not change if relative prices change.
• C)The price of a "basket of goods" should be roughly equivalent in each country in relatively efficient markets.
• D)In competitive markets free of transportation costs and trade barriers,identical products sold in different countries must sell for the same price.
• E)If the law of one price were true for all goods and services,the PPP exchange rate could not be found from any individual set of prices.

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