If the Purchasing Power Parity Theory Was Valid at All

question 9

Multiple Choice

If the purchasing power parity theory was valid at all times,

• A)the nominal exchange rate would be very volatile.
• B)the real exchange rate would be the stable.
• C)aggregate demand would be relatively stable.
• D)All of the above.

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Definitions:

Consumption

The usage of goods and services by households or individuals, forming a major component of aggregate demand in an economy.

Income

Income refers to the money received by an individual or entity, typically in the form of wages, salaries, or returns from investments, over a specified period of time.

Interest Rate

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.

Bushels

A unit of volume that is used for measuring agricultural produce, such as grain, fruit, or vegetables.