A Principal Reason That Purchasing Power Parity Does Not Hold

question 36

Multiple Choice

A principal reason that purchasing power parity does not hold exactly in practice is

• A) that foreign and domestic assets are not perfect substitutes.
• B) the existence of non-traded goods.
• C) that consumers in different countries have different preferences.
• D) costs of production are not the same in all countries.
• E) that it is a short-run theory.

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Definitions:

Yamasee

A Native American tribe in the southeastern United States, known for the Yamasee War against English colonization.

Creek

Refers to a Native American people originally from the southeastern United States, also known as the Muscogee, or to a small flowing natural freshwater stream.

West African

Pertaining to the western region of the African continent, known for its diverse cultures, languages, and historical significance in the transatlantic slave trade.

Atlantic

Refers to the Atlantic Ocean, the second-largest of the world's oceans, lying between the Americas to the west and Europe and Africa to the east.