What three real-world complications keep purchasing power parity from being a complete explanation of exchange rate fluctuations in the long run? Explain
What will be an ideal response?
First, not all products are traded internationally. As a result, there is no way to take advantage of profit opportunities to buy in one country and sell in another country, so exchange rates will not reflect exactly the relative purchasing powers of currencies. Secondly, products and consumer preferences for products vary across countries. As a result, consumers in one country might be willing to pay different prices for products than consumers in another country, and exchange rates might not adjust for that difference in the long run. Finally, countries sometimes impose barriers to trade. If there are barriers to trade, it may not be possible to take advantage of profit opportunities to buy in one country and sell in another country, so, again, exchange rates will not reflect exactly the relative purchasing powers of currencies.
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U.S. exports
a. represent approximately 50 percent of GDP b. represent approximately 35 percent of GDP c. represent approximately 11 percent of GDP d. consist primarily of agricultural commodities e. consist primarily of metals and other raw materials
Between the summer of 2005 and April 2008, the Chinese yuan ___ against the U.S. dollar
A. appreciated by 5% B. appreciated by 21% C. depreciated by 5% D. depreciated by 20%
"Bill Gates has made billions of dollars producing and marketing computer software. Many workers and consumers must have observation suffered in order for Gates to amass such enormous wealth." The person who made this
a. has failed to understand the principle of opportunity cost. b. has failed to comprehend the fallacy of composition. c. has failed to understand that specialization and voluntary exchange result in mutual economic gain. d. has utilized the economic way of thinking by thinking the gains of producers are made primarily at the expense of consumers and workers.
Which of the following is an in-kind transfer payment?
A. Medicaid. B. Social Security. C. unemployment insurance. D. Temporary Assistance to Needy Families.