What Does Purchasing-Power Parity Imply for the Exchange Rate

question 83

Multiple Choice

What does purchasing-power parity imply for the exchange rate?

• A) that the real exchange rate is equal to one
• B) that the nominal exchange rate is equal to one
• C) that the real exchange rate is equal to the nominal exchange rate
• D) that the real exchange rate is equal to the difference in inflation rates between the two countries

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Definitions:

Level of Significance

A predetermined threshold in hypothesis testing, below which the null hypothesis is rejected, indicating statistical significance.

Null Hypothesis

A hypothesis that assumes no significant difference or relationship exists in the general population from which a sample is drawn.

Variance

A measure of the dispersion of a set of data points around their mean; the square of the standard deviation.

Level of Significance

The probability threshold below which the null hypothesis is rejected in hypothesis testing, typically denoted by alpha (α).