Purchasing power parity does not hold in the short to medium run because
A) exports don't equal imports.
B) exchange rates aren't internationally traded.
C) some goods aren't internationally traded.
D) most business cycles are caused by shocks to aggregate demand.

Question

Quizplus · Accepted Answer

Purchasing power parity assumes that prices of goods are equal in different countries, which leads to equalization of exchange rates. However, some goods and services are not internationally traded and therefore, their prices differ in different countries, which violates the PPP in the short to medium run.

Purchasing Power Parity Does Not Hold in the Short to Medium