Purchasing power parity can arise when:
A)goods from a high-price country are purchased and then sold in a low-price country.
B)goods from a low-price country are purchased and then sold in a high-price country.
C)a country with low-price goods arbitrarily imposes tariffs that increase the price of the goods.
D)manufacturers of goods restrict the sale of those goods in low-price countries.

Question

Quizplus · Accepted Answer

Purchasing power parity arises when goods from a low-price country are purchased and then sold in a high-price country. This leads to price equalization between the two countries, as demand for the cheaper goods increases in the high-price country and supply decreases in the low-price country, causing the prices to rise in the latter. This leads to the convergence of the exchange rate with the equilibrium rate based on price levels in the two countries.

Purchasing Power Parity Can Arise When