The Theory of Purchasing-Power Parity Primarily Explains

question 57

Multiple Choice

The theory of purchasing-power parity primarily explains

• A)why trade deficits tend to move to zero over time.
• B)how foreign prices affect domestic prices.
• C)the determination of the real exchange rate.
• D)why a change in the real exchange rate changes a country's net exports.

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Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow its revenues and profits without increasing financial leverage or external equity.

Retention Ratio

The share of net income not disbursed as dividends to shareholders but rather reserved by the business for various uses.

Dividend Payout Ratio

The fraction of net income a firm pays to its shareholders in the form of dividends, compared to the portion reinvested in the business.

Percentage of Sales Approach

A method used in financial forecasting to estimate various elements of a financial statement as a percentage of forecasted sales.