According to the Purchasing Power Parity Theorem and the Quantity Theory of Money, other things being...
According to the Purchasing Power Parity Theorem and the Quantity Theory of Money, other things being equal, which of the following would cause the price of UK pound (r = US$/UKpound) to fall:
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a) A decrease in U.S. real GDP |
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b) A decrease U.K. inflation rate |
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c) An increase in U.S. inflation rate |
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d) A decrease in U.S. money supply |
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e) a decrease in UK money supply |
Homework Answers
Ans
A Decrease in the UK money supply
Explanation - As the theory states that there is a proportional relationship between money supply and price. if the money supply gets decrease then the price level will fall.
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