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Question
Which of the following is true of the purchasing power parity (PPP) theory?A.A country's "nominal" interest rate (i) is the sum of the required "real" rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I).
B.The exchange rate will not change if relative prices change.
C.The price of a "basket of goods" should be roughly equivalent in each country in relatively efficient markets.
D.In competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price.
E.If the law of one price were true for all goods and services, the PPP exchange rate could not be found from any individual set of prices.
Answer
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