According to the purchasing power parity theory, a change in relative interest rates between two countries must cause a change in exchange rates.

2.3 Discretionary Policy

What will be an ideal response?

If a good has a price elasticity of demand of -3, it implies that:

A) if the income of the consumer increases by 3%, the quantity demanded of that good will increase by 1%. B) if the income of the consumer increases by 1%, the quantity demanded of that good will increase by 3%. C) if the price of the good increases by 1%, the quantity demanded of the good will decrease by 3%. D) if the price of the good increases by 3%, the quantity demanded of the good will increase by 1%.