Which of the following statements is correct?
A. PPP is a theory of exchange rate determination.
B. Inflation differentials cause changes in exchange rates.
C. PPP is an equilibrium relationship between two endogenous variables.
D. PPP, or the law of one price, should hold well for individual goods.
Answer:C
Which of the following statements is correct?
A. PPP is a theory of exchange rate determination. B. Inflation differentials cause changes in exchange rates. C. PPP is an equilibrium relationship between two endogenous variables. D. PPP, or the law of one price, should hold well for individual goods.