Purchasing Power Parity's Assumption That the Real Exchange Is Constant

question 81

Multiple Choice

Purchasing power parity's assumption that the real exchange is constant

• A)is correct in nearly all instances.
• B)would be correct were it not for the existence of trade barriers.
• C)is not reasonable.
• D)is correct for trade between the United States and Japan, but incorrect in most other bilateral trading relations.

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Definitions:

Base Year

A reference year used in economic index calculations, price comparisons, and economic data to account for the effects of inflation.

Unreported Income

Earnings not declared to tax authorities, often to evade taxation; part of the informal or shadow economy.

GNP

Gross National Product is the total dollar value of all goods and services produced over a specific time period by the nationals of a country, regardless of where the production takes place.

GDP

Gross Domestic Product; the total value of all goods and services produced over a specific time period within a country.