If the Purchasing Power of the Dollar Is Greater Than

question 88

Multiple Choice

If the purchasing power of the dollar is greater than the purchasing power of the euro,purchasing power parity predicts that the exchange rate will

• A)increase if the exchange rate is greater than 1 euro per dollar.
• B)decrease if the exchange rate is less than 1 euro per dollar.
• C)be equal to the relative purchasing power across the currencies in the long run.
• D)not fluctuate and stay constant in the long run.

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Definitions:

Volume Variance

The difference between the expected volume of units produced or sold and the actual volume, affecting cost allocations in budgeting.

Predetermined Overhead Rate

An estimated charge per unit of activity used to allocate manufacturing overhead costs to products, calculated at the beginning of a period based on expected costs and activity levels.

Variable Component

A portion of a cost or expense that varies directly with the level of activity or volume, such as the amount of raw materials used in production.

Fixed Manufacturing Overhead

The set amount of costs for production that do not vary with the level of output, such as salaries of supervisors and rent of the factory building.