The Purchasing Power Parity Theory

question 163

Multiple Choice

The purchasing power parity theory

• A)is more a predictor of a long-run tendency than of the day-to-day relationship between changes in the price level and the exchange rate
• B)predicts that exchange rates between two currencies will adjust in the long run to reflect the price level difference between two countries
• C)is more a predictor of a short-run phenomenon than of a long-run relationship between the price level and the exchange rate between two countries
• D)is helpful in explaining long-run trends, even though trade barriers and central bank intervention may hinder the usefulness of the theory
• E)tells us that a country's currency generally will appreciate if its inflation rate is lower than that of the rest of the world

---

Definitions:

Principal

In a legal context, the main party who authorizes another (the agent) to act on their behalf in transactions or other legal matters.

Agent

An individual or entity authorized to act on behalf of another (the principal) in dealings with third parties.

Contract Remedies

Legal solutions provided in case of a breach of contract, including compensation, specific performance, and rescission, designed to address or correct the breach.

Tort Remedies

Legal solutions available in tort law for injuries or damages, including restitution, damages compensation, and injunctive relief.