Which of the Following States That for Any Two Countries,the

question 77

Multiple Choice

Which of the following states that for any two countries,the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries?

• A)Bandwagon effect
• B)Law of one price
• C)International Fisher effect
• D)Helms-Burton Act
• E)Purchasing power parity (PPP)theory

---

Definitions:

Decreasing-Cost Industry

An industry in which expansion through the entry of firms lowers the prices that firms in the industry must pay for resources and therefore decreases their production costs.

Long-Run Supply Curve

A graphical representation showing the relationship between market prices and the amount of output that firms are willing to supply in the long run.

Industry Expansion

The process of an industry growing in size, output, or number of participants, often through increased demand or technological advancements.

Decreasing-Cost Industry

An industry where the average cost of production decreases as the industry grows and output increases, often due to economies of scale.