Which of the following is a reason why exchange rates may deviate from their purchasing power parity values for many years?
A) Some goods are not tradable.
B) In some cases, a foreign-produced good is not a perfect substitute for a domestically produced version of the same thing.
C) In some markets, import quotas limit the ability of firms to agree on exchange prices.
D) Both a and b are correct.

Question

Quizplus · Accepted Answer

The deviation from purchasing power parity values can be caused by non-tradable goods and imperfect substitutes in some cases. Both options A and B are correct, leading to option D as the best answer. Option C does not directly relate to the deviation from purchasing power parity values.

Which of the Following Is a Reason Why Exchange Rates