In practice
A) changes in national price levels often tell us relatively little about exchange rate movements.
B) changes in national price levels raise the exchange rate.
C) changes in national price levels lower the exchange rate.
D) changes in national price levels often tell us about exchange rate movements.
E) changes in national price levels match identical changes in the exchange rate.

Question

Quizplus · Accepted Answer

Changes in national price levels do not necessarily indicate anything about exchange rate movements as there are multiple factors that impact exchange rates, such as interest rates, trade balances, and political events. Therefore, option A is the best choice as it acknowledges the limited relationship between changes in national price levels and exchange rate movements.

In Practice