Which of the Following Describes the Purchasing Power Parity Theory

Multiple Choice

Which of the following describes the purchasing power parity theory of exchange rate determination?

A) The exchange rate will adjust in the long run until the interest rate is roughly the same in both countries.
B) The exchange rate will adjust in the long run until real GDP per capita is roughly the same in both countries.
C) The exchange rate will adjust in the long run until the average price of goods is roughly the same in both countries.
D) The exchange rate will adjust in the short run until the average price of goods is roughly the same in both countries.
E) Prices adjust in the short run until the exchange rate is roughly the same in both countries.