For Purchasing-Power Parity to Exist

question 179

Multiple Choice

For purchasing-power parity to exist:

• A) Flows of currency in the trade account must be offset by flows of currency in the capital account
• B) The nominal interest rate must be equal to the real interest rate in all countries
• C) Converting a sum of funds from one currency to another does not alter its purchasing power
• D) A country's trade account must always be in balance

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Definitions:

Interest-Rate Cost

The expense incurred by borrowers when they take out loans, represented as a percentage of the total loan amount charged over time.

Production Possibilities Curve

A graphical representation showing the maximum combination of goods or services that can be produced in a given timeframe with available resources and technology.

Technological Advance

Improvements in technology that increase productivity and lead to new products or more efficient processes.

R&D Spending

The amount of financial resources allocated by organizations on research and development activities aimed at creating new products or improving existing ones.