Asked by Leticia Miranda on Jul 26, 2024
Verified
The idea that floating exchange rates will equate the buying power of national currencies is called
A) the equation of exchange.
B) the balance of payments.
C) Say's Law.
D) purchasing power parity theory.
Purchasing Power Parity Theory
An economic theory that suggests that in the long term, exchange rates should adjust to equalize the price of identical goods and services in different countries.
Floating Exchange Rates
A system where the value of a currency is allowed to fluctuate according to the foreign exchange market without direct government control.
National Currencies
The official money used in different countries, which serves as a medium of exchange within each nation and can have different forms such as notes and coins.
- Grasp the concept of purchasing power parity and its role in determining exchange rates.
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Learning Objectives
- Grasp the concept of purchasing power parity and its role in determining exchange rates.
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