Purchasing-power parity theory:
A)is a completely accurate description of the real world.
B)would be entirely accurate if only goods were traded.
C)would be entirely accurate if all consumers had the same preferences.
D)provides a reason to expect that movements in the real exchange rate will typically be small or temporary.

Question

Quizplus · Accepted Answer

Purchasing-power parity (PPP) suggests that in the long run, exchange rates should adjust to equalize the price of identical goods and services in different countries. This implies that deviations from PPP should be temporary, leading to small or temporary movements in the real exchange rate.

Purchasing-Power Parity Theory