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Purchasing Power Parity (PPP)theory States That

Question 22

Multiple Choice

Purchasing Power Parity (PPP) theory states that

A) the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels.
B) as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will depreciate against stable currencies.
C) the prices of standard commodity baskets in two countries are not related.
D) the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels,and as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will depreciate against stable currencies.

Correct Answer: