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What Three Real-World Complications Keep Purchasing Power Parity from Being

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Essay

What three real-world complications keep purchasing power parity from being a complete explanation of exchange rate fluctuations in the long run? Explain.


Definitions:

Input

A good or service used to produce another good or service.

Factor Distribution

The way in which income and wealth are shared among different factors of production, such as labor and capital.

Income

The amount of money or its equivalent received during a period of time in exchange for labor or services, from the sale of goods or property, or as a profit from financial investments.

Derived Demand

The demand for a good or service that arises from the demand for another good or service. For example, the demand for steel is derived from the demand for cars.

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