Trade restrictions can prevent purchasing power parity from holding because:

Question

Quizplus · Accepted Answer

Trade restrictions such as tariffs can increase the cost of imported goods, which would lead to higher prices for consumers and prevent purchasing power parity from holding. This is because PPP assumes that the same goods are priced equivalently across countries, but if trade restrictions make certain goods more expensive in one country, then their prices won't be equivalent to the same good in another country.

Trade Restrictions Can Prevent Purchasing Power Parity from Holding Because