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Business, 09.12.2021 02:30 persondontknowhelp
Large-scale wars typically bring a suspension of international trading and financial activities. Exchange rates lose much of their relevance under these conditions, but once the war is over governments wishing to fix exchange rates face the problem of deciding what the new rates should be. The PPP theory has often been applied to this problem of postwar exchange rate realignment. If you were the British Chancellor of the Exchequer and World War I had just ended, a good first approximization to identifying the appropriate post-war dollar/pound exchange rate might be obtained by A. allowing market forces to determine the appropriate rate. B. simply restoring the pre-war rate. C. adjusting the pre-war rate according to the contribution each country made to the war effort. D. adjusting the pre-war rate according to the price level changes experienced by the two countries during the war. E. adjusting the pre-war rate according to the income changes experienced by the two countries during the war.
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