The Theory of Purchasing Power Parity

question 27

Multiple Choice

The theory of purchasing power parity

• A)extends the law of one price to a group of goods.
• B)assumes that most changes in nominal exchange rates are the result of changes in real exchange rates.
• C)assumes that inflation rates are roughly the same in most countries.
• D)was valid only under the gold standard.

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Definitions:

Customs Clearance

The process of obtaining permission to import or export goods from one country to another, including the payment of duties and taxes.

Supplier's Country

The nation in which a supplier or producer of goods or services is located or operates from.

Port

A location on a coast or shore containing harbors where ships can dock and transfer people or cargo to or from land.

CIF

An international commercial term (Incoterm) meaning "Cost, Insurance, and Freight," indicating the seller must cover these costs to the point of destination specified.