A Principal Reason That Purchasing Power Parity Does Not Hold

question 34

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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