Which of the Following Describes the Purchasing Power Parity Theory

question 154

Multiple Choice

Which of the following describes the purchasing power parity theory of exchange rate determination?

• A) The exchange rate will adjust in the long run until the interest rate is roughly the same in both countries.
• B) The exchange rate will adjust in the long run until real GDP per capita is roughly the same in both countries.
• C) The exchange rate will adjust in the long run until the average price of goods is roughly the same in both countries.
• D) The exchange rate will adjust in the short run until the average price of goods is roughly the same in both countries.
• E) Prices adjust in the short run until the exchange rate is roughly the same in both countries.

---

Definitions:

Confidence Interval

A range of values that is used to estimate the true value of a population parameter with a certain level of confidence.

Independent Random Samples

Samples selected from a population in such a way that each individual sample is chosen randomly and independently from one another.

Confidence Interval

A span of numerical data obtained from sampling statistics that is expected to enclose an uncertain population parameter within a given confidence level.

Mean Calories

The average amount of energy contained in a food item or diet, typically measured in calories.