PPP does not hold well because of the following except:
A) barriers to international commodity arbitrage.
B) the existence of non-tradables.
C) commodity prices are different in different countries.
D) the CPI index is calculated using the same basket of goods.

Question

Quizplus · Accepted Answer

The statement in option D is true and does not contradict the concept of PPP. PPP holds that, over the long term, prices of goods and services in different countries will converge to equalize the prices when measured in a common currency. The CPI index is calculated using the same basket of goods, which is a key component of the PPP theory. The other options all represent factors that can cause deviations from PPP.

PPP Does Not Hold Well Because of the Following Except