If the purchasing power of a dollar is less than the purchasing power of the eur
ID: 1204602 • Letter: I
Question
If the purchasing power of a dollar is less than the purchasing power of the euro, purchasing power parity would predict that
in the short run, exchange rates will move to equalize the purchasing power of the dollar and the euro.
in the long run, exchange rates will move to equalize the purchasing power of the dollar and the euro.
in the long run, interest rates will move to equalize the purchasing power of the dollar and the euro.
in the short run, interest rates will move to equalize the purchasing power of the dollar and the euro.
in the short run, exchange rates will move to equalize the purchasing power of the dollar and the euro.
in the long run, exchange rates will move to equalize the purchasing power of the dollar and the euro.
in the long run, interest rates will move to equalize the purchasing power of the dollar and the euro.
in the short run, interest rates will move to equalize the purchasing power of the dollar and the euro.
Explanation / Answer
in the long run, exchange rates will move to equalize the purchasing power of the dollar and the euro.
. Exchange rate movements in the short term are news-driven , hence PPP gives exchange rates values for the long run where it equalizes the purchasing power of the dollar and the euro.