As Long as Trade Across Borders Is Unrestricted and Exchange

question 211

Multiple Choice

As long as trade across borders is unrestricted and exchange rates adjust freely, the purchasing power parity theory predicts that the exchange rate between two national currencies will adjust in the

• A)short run because of the actions of arbitrageurs
• B)long run to reflect differences in the nations' price levels
• C)long run to reflect changes in the governments' trade policies
• D)short run because of the actions of speculators
• E)long run to reflect differences in military power

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