Purchasing Power Parity Does Not Hold in the Short to Medium

question 94

Multiple Choice

Purchasing power parity does not hold in the short to medium run because

• A)exports don't equal imports.
• B)exchange rates fluctuate too much.
• C)most business cycles are caused by shocks to aggregate demand.
• D)countries produce different goods.

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Definitions:

Stock Splits

A corporate action that increases the number of a company's shares by dividing each share, which typically decreases the share price but does not change the overall market capitalization.

Shareholders' Equity

The residual interest in the assets of a company after deducting its liabilities, representing ownership interest in the company.

Liquidity

The ease with which an asset can be converted to cash without affecting its market price.

Homemade Dividends

The concept where investors sell a portion of their portfolio to create cash flow, as an alternative to relying on traditional dividends from investments.