Purchasing power parity is most useful
A) for predicting short run exchange rate fluctuations
B) for predicting currency fluctuations for low-inflation nations
C) for explaining long run trends in exchange rates
D) in setting targets for monetary policy
E) as an explanation of why inflation is higher in some countries than others

Question

Quizplus · Accepted Answer

Purchasing power parity is most useful for explaining long run trends in exchange rates. It is a theory that suggests exchange rates will adjust over time to equalize the prices of identical goods and services in different countries.

Purchasing Power Parity Is Most Useful