If People Expect Relative PPP to Hold

question 1

Multiple Choice

If people expect relative PPP to hold

• A) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected, in the United States and Europe, respectively, over the relevant horizon.
• B) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected in Europe and the United States, respectively.
• C) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected, over the relevant horizon, in the United States and Europe, respectively, in the short run.
• D) the difference between the interest rates offered by dollar and euro deposits will be above the difference between the inflation rates expected, over the relevant horizon, in the United States and Europe, respectively.
• E) the difference between the interest rates offered by dollar and euro deposits will be below the difference between the inflation rates expected, over the relevant horizon, in the United States and Europe, respectively.

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Definitions:

Production Quantities

The amount of product that is produced within a specific period.

Microbusiness

A small business typically defined by having fewer than 10 employees and operating on a very small scale.

Diversity

The inclusion and representation of different groups of people, such as races, cultures, ages, and genders, within a community or organization.

Economies Of Scale

Refers to the cost advantage that arises with increased output of a product, where the per-unit cost decreases as the production scale becomes larger.