With Relative PPP, a Rise in a Nation's Inflation Rate

question 14

Multiple Choice

With relative PPP, a rise in a nation's inflation rate is always offset by an increase in the rate of __________ of its currency.

• A) appreciation
• B) revaluation
• C) depreciation
• D) devaluation

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Definitions:

Substitution Effect

The economic principle that as the price of one good increases, consumers will replace it with a cheaper alternative, holding utility constant.

Price Change

A variation in the cost of goods or services over time, which can result from factors like supply and demand, inflation, or market dynamics.

Income

The amount of money received on a regular basis from work, property, investments, or government benefits.

Utility Function

A mathematical representation of how consumers derive satisfaction from goods and services, assigning numerical values to different bundles of goods.