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    Question

    Purchasing Power Parity (PPP) theory suggests that

    exchange rates will adjust to offset differences in:
    A Interest rates. Correct Answer Incorrect Answer
    B Inflation rates. Correct Answer Incorrect Answer
    C GDP growth rates. Correct Answer Incorrect Answer
    D Government bond yields. Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    Absolute PPP states that the exchange rate between two currencies should equal the ratio of the countries' price levels.

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