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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Definitions:

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, culminating in a net income or loss.

Controllable Expenses

Costs that can be influenced by the decisions of a manager.

Profit Center Management

The administration of a segment of a business that is directly responsible for its own revenue and expenses, aiming to maximize profits.

Salaries

Fixed regular payments made by employers to employees, typically expressed on an annual basis but paid in smaller increments such as monthly.