In General, If the Trade Costs Are Higher, the Existence

question 74

Multiple Choice

In general, if the trade costs are higher, the existence of PPP and the LOOP are:

• A) more likely.
• B) impossible.
• C) less likely.
• D) irrelevant.

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Definitions:

Purchasing Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach to assess their purchasing power.

Exchange Rate

The value of one currency for the purpose of conversion to another, which determines how much foreign currency one can get with the domestic currency.

Basket of Goods

A selection of various goods and services used to track inflation and the cost of living over time.

Balance of Payments

A record of all financial transactions made between consumers, businesses, and the government in one country with others.