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.

---

Definitions:

Proscriptive

Pertaining to prohibitions, rules, or norms specifying what individuals should not do in a given context.

Injunctive

Relating to an authoritative rule or order which dictates expected or allowable behaviors.

Focus Theory

A theoretical framework that emphasizes how individuals allocate their attention and resources towards specific goals or tasks.

Salience

The aspect of a schema that is active in one’s mind and, consciously or not, colors perceptions and behavior.