Identify the Incorrect Statement About the PPP Theory

question 78

Multiple Choice

Identify the incorrect statement about the PPP theory.

• A)It predicts that exchange rates are determined by relative prices.
• B)It yields accurate predictions in the short run.
• C)It best predicts exchange rate changes for countries with high rates of inflation.
• D)It assumes away transportation costs and barriers to trade.

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Definitions:

Substitution

The act of replacing one item or factor with another due to factors like cost, preferences, or availability, often affecting consumer choices and market dynamics.

Yogurt

A food produced by bacterial fermentation of milk, often sweetened and flavored.

Almonds

A type of nut that is harvested from almond trees, used both as a food item and for producing almond oil.

Indifference Curve

A chart that depicts various combinations of products that a consumer sees as equally desirable, illustrating their preferences.