The 'Purchasing Power Parity Theory' of Exchange Rate Determination States

question 106

Multiple Choice

The 'purchasing power parity theory' of exchange rate determination states that:

• A)in the short run, costs of labour are the most important determinant of the exchange rate.
• B)in the long run, a government agency sets the exchange rate between countries to maintain purchasing power.
• C)in the long run, exchange rates will move to equalise the purchasing power of different countries.
• D)in the long run, exchange rates are mainly driven by currency speculators' expectations.

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Definitions:

Internal Organs

Organs located inside the body that perform essential functions necessary for survival, such as the heart, liver, and kidneys.

Somatic Nervous System

A part of the peripheral nervous system associated with the voluntary control of body movements via skeletal muscles.

Parasympathetic Nervous System

A division of the autonomic nervous system that conserves energy as it slows the heart rate, increases intestinal and gland activity, and relaxes sphincter muscles.

Endocrine System

A network of glands in the body that secrete hormones directly into the circulatory system to regulate the body's growth, metabolism, and sexual development and function.