Purchasing power parity does not hold in the short to medium run because
A)exports don't equal imports.
B)exchange rates fluctuate too much.
C)most business cycles are caused by shocks to aggregate demand.
D)countries produce different goods.

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) assumes that identical goods should have the same price in different countries when expressed in a common currency. However, in reality, countries produce different goods, which means that the basket of goods used to compare prices is not identical across countries, leading to deviations from PPP in the short to medium run.

Purchasing Power Parity Does Not Hold in the Short to Medium