Empirical evidence shows that in the short run,purchasing power parity ________,and in the long run,purchasing power parity ________.
A)holds; does not hold
B)holds; holds
C)does not hold; holds
D)does not hold; does not hold

Question

Quizplus · Accepted Answer

Empirical evidence suggests that in the short run, PPP does not hold due to various factors such as transaction costs, government policies, and market imperfections. However, in the long run, PPP tends to hold due to arbitrage opportunities and adjustments in exchange rates ultimately equalizing the prices of goods and services in different countries.

Empirical Evidence Shows That in the Short Run,purchasing Power Parity