The Purchasing Power Parity Theory of Exchange Rate Determination Maintains

Multiple Choice

The purchasing power parity theory of exchange rate determination maintains that

A) the exchange rate between two nations' currencies is determined by the percent of gold that backs each nation's currency.
B) the exchange rate between two nations' currencies adjusts to reflect differences in the price levels in the two nations.
C) in the short run, exchange rates are determined by central bank intervention in the currency markets.
D) the exchange rate between two currencies is determined by the debt that each nation owes to the World Bank.