8.8
When the price of one commodity is the same wherever in the world the good is being sold when denominated in a particular currency, it is said the Law of ________ prevails.
a. b. c. d.
Currency supply Currency demand
Purchasing power parity One Price
The Perfect Market Ideal, p.265
8.9
Which one of the following reasons for violations of the Law of One Price is the most obvious?
a. b. c. d.
tariffs on imports banking rules industrial policies
exchange rate controls
Tariffs and Quotas, p. 265
8.10 In the absence of pure competition, firms who segment markets may be able to charge
different prices in different countries for the same good. This practice is known as ________.
a. b. c. d.
mark to market
interest rate arbitrage pricing to market speculation
Noncompetitive Markets, p.267
8.11 What is the name of the expression that refers to the costs that a firm incurs in changing
its prices?
a. b. c. d.
fixed costs variable costs cost-base pricing menu costs
Sticky Prices, p.267
8.12 When the external purchasing power or a currency is greater than the internal
purchasing power, the currency is said to be ________.
a. b. c. d.
overvalued undervalued at parity in arbitrage
Overvaluations and Undervaluations of Currencies, p. 269
8.13 In its absolute version, purchasing power parity states that price levels
worldwide should be ________ when expressed in a common currency.
a. equal
b. roughly equal c. different
d. opportunities for arbitrage
Absolute Purchasing Power Parity, p. 263
8.14 The theory of relative purchasing power parity states that, between two nations,
the
a. inflation rates are unrelated
b. exchange rate differential reflects the inflation rate differential c. inflation rate is smaller in weaker currencies
d. the interest rate is greater than the inflation rate during depreciations
The Theory of Absolute Purchasing Power Parity, p.263
8.15 The following options are all important reasons to study the theory of PPP except:
a. It provides a baseline forecast of future exchange rates that is usually considered
whenever it is necessary to forecast future cash flows in different currencies.
b. Deviations from PPP significantly affect the profitability of firms
c. It is particularly useful in assessing cost-of-living differences across countries.
d. The deviations from the theory are very small when it comes to the determination
of exchange rates.
The General Idea of Purchasing Power, p.260
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