The 'Purchasing Power Parity Theory' of Exchange Rate Determination States

Multiple Choice

The 'purchasing power parity theory' of exchange rate determination states that:

A) in the short run, costs of labour are the most important determinant of the exchange rate.
B) in the long run, a government agency sets the exchange rate between countries to maintain purchasing power.
C) in the long run, exchange rates will move to equalise the purchasing power of different countries.
D) in the long run, exchange rates are mainly driven by currency speculators' expectations.