The empirical evidence on purchasing power parity seems to point out that:
A. purchasing power parity does a good job of explaining short-run movements in exchange rates, but does not hold up to scrutiny over the long run.
B. inflation and a country's rate of currency appreciation are positively correlated.
C. purchasing power parity is a good theory for international trade, but is of little use in explaining exchange rate movements.
D. purchasing power parity can explain long run movements in exchange rates but does not hold up to scrutiny for short-run changes.
Answer: D
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