Combining the Relative PPP with the Monetary Model of Exchange

question 109

Multiple Choice

Combining the relative PPP with the monetary model of exchange rates, we find that the rate of depreciation of a currency (relative to another nation) in the long run is equal to:

• A) the sum of nominal money supply growth rates in each nation.
• B) the difference between the nominal money supply growth rates in each nation minus the difference between growth rates of real GDP.
• C) the average of growth rates of real GDP in each nation.
• D) the sum of population growth plus technology growth.

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