Critics of Purchasing Power Parity Argue That

question 106

Multiple Choice

Critics of purchasing power parity argue that:

• A)it does not account for trade in goods.
• B)it cannot explain exchange rate changes in the long run.
• C)it does not apply when exchange rates are flexible.
• D)long-run equilibrium exchange rates are never attained.

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Definitions:

Liability

A financial obligation or responsibility that an individual or entity owes to another, which is required to be settled in the future.

Required Reserve Ratio

The fraction of deposits that banks are required to hold in reserve and not lend out.

Checkable Deposits

Bank account balances that can be easily withdrawn or used for payments through checks, debit cards, or electronic transfers.

Opportunity Cost

The cost of foregoing the next best alternative when making a decision, representing the benefits one misses out on when choosing one option over others.