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Question
The law of one price states that:
A. by comparing the prices of identical products in different currencies, it would be possible to determine the real or PPP exchange rate that would exist if markets were efficient.
B. a countrys nominal interest rate (i) is the sum of the required real rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I).
C. a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower.
D. when the growth in a countrys money supply is faster than the growth in its output, price inflation is fueled.
E. in competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price when their price is expressed in terms of in the same currency.
Answer
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