The purchasing power parity theory is a reasonably good explanation for nominal exchange rate determination:
A)in the short run.
B)in the long run.
C)when there are significant volumes of non-traded goods and services.
D)when there are fixed exchange rates.

Question

Quizplus · Accepted Answer

Empirical studies have found that the PPP theory is useful for predicting changes in nominal exchange rates over the relatively long run. In particular, this theory helps to explain the tendency of countries with high inflation to experience depreciation of their exchange rates.

The Purchasing Power Parity Theory Is a Reasonably Good Explanation