The PPP theory fails in reality because
A) transport costs and restrictions on trade.
B) monopolistic or oligopolistic practices in goods markets.
C) the inflation data reported in different countries are based on different commodity baskets.
D) A, B, and C.
E) inflation rates are unrelated to money supply growth.

Question

Quizplus · Accepted Answer

The PPP theory fails in reality due to various factors such as transport costs and restrictions on trade, monopolistic or oligopolistic practices in goods markets, and the inflation data reported in different countries being based on different commodity baskets. Therefore, option D is the correct answer as it combines all these factors. Conversely, option E is incorrect as it is not a reason that causes the PPP theory to fail in reality.

The PPP Theory Fails in Reality Because