The Next Questions Refer to the Following

question 4

Multiple Choice

The next questions refer to the following.
During a common base period, a basket of goods costs C$14,700 in Canada and US$10,000 in the US.
-Then purchasing power parity theory predicts that

• A) the real exchange rate will be 1.47
• B) the US will experience 4.7% more inflation annually than Canada for 10 years
• C) C$1 should exchange nominally for US$0.68
• D) the Canadian dollar will depreciate by 47% against the US dollar
• E) the US dollar will depreciate by 47% against the Canadian dollar

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Definitions:

Scale Reduction

The process of decreasing the size or output level of operations in a business or economic system.

Total Cost

The complete cost of production, including both fixed and variable costs, for a specific level of output.

Variable Cost

Costs that change in proportion to the level of production or sales, such as materials and labor.

Loan

A loan is a sum of money borrowed that is expected to be paid back with interest.