The relationship between the exchange rate and the prices of tradable goods is known as the ?
Correct answer: A. purchasing power parity theory
- A. purchasing power parity theory
- B. asset markets theory
- C. monetary theory
- D. balance of payments theory
Explanation
Purchasing power parity theory links exchange rates with the relative prices of goods, especially tradable goods. The other theories focus on assets, money, or international payments rather than this direct price relationship.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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