Which of the following statements is the MOST accurate?
A) If PPP holds true, then the law of one price holds true for every commodity as long as the reference baskets used to reckon different countries' price levels are the same.
B) If the law of one price holds true for every commodity, PPP must hold automatically.
C) If the law of one price holds true for every commodity, PPP must automatically hold as long as the reference baskets used to reckon different countries' price levels are the same.
D) If the law of one price does not hold true for every commodity, PPP cannot be true as long as the reference baskets used to reckon different countries' price levels are the same.
E) If PPP holds true, then the law of one price must hold true automatically.

Question

Quizplus · Accepted Answer

If the law of one price holds true for every commodity, then PPP must hold as long as the reference baskets used to reckon different countries' price levels are the same, because PPP is based on the aggregation of the law of one price across all goods and services in the basket.

Which of the Following Statements Is the MOST Accurate