Purchasing Power Parity (PPP)theory States That

Multiple Choice

Purchasing Power Parity (PPP) theory states that:

A) the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels.
B) as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will appreciate against stable currencies.
C) the prices of standard commodity baskets in two countries are not related.
D) the exchange rate between currencies of two countries will not be equal to the ratio of the countries' price levels.