Two General Conclusions Can Be Made from the Empirical Tests

question 38

Multiple Choice

Two general conclusions can be made from the empirical tests of purchasing power parity (PPP) :

• A) PPP holds up well over the short run but poorly for the long run, and the theory holds better for countries with relatively low rates of inflation.
• B) PPP holds up well over the short run but poorly for the long run, and the theory holds better for countries with relatively high rates of inflation.
• C) PPP holds up well over the long run but poorly for the short run, and the theory holds better for countries with relatively low rates of inflation.
• D) PPP holds up well over the long run but poorly for the short run, and the theory holds better for countries with relatively high rates of inflation.

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Definitions:

Consumer Demand

The desire of consumers to purchase goods and services at given prices, which can vary with changes in income, preferences, and prices of related goods.

Purely Competitive Firm

A company operating in a market where there are many buyers and sellers, the product is homogeneous, and there are no barriers to entry or exit.

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs, indicating the profitability of a business venture beyond basic operating costs.

Unimpeded Entry

A market condition where there are no barriers for new firms to enter and compete in the industry.