The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Deviations from purchasing power parity will be increasingly higher as international trade tariffs become more restrictive. This is mainly because:
A)arbitrage activities become less profitable.
B)governments discourage purchasing power parity.
C)the interest rate parity fails to hold.
D)goods become more differentiated across countries.
E)individuals develop hatred toward closed economies.

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2
 
-Deviations from purchasing power parity will be increasingly higher as international trade tariffs become more restrictive. This is mainly because:
A)arbitrage activities become less profitable. 
B)governments discourage purchasing power parity. 
C)the interest rate parity fails to hold. 
D)goods become more differentiated across countries. 
E)individuals develop hatred toward closed economies.

Quizplus · Accepted Answer

Restrictive trade tariffs increase the cost of trading goods across borders, reducing the profitability of arbitrage activities that would otherwise help equalize prices and maintain purchasing power parity.

The Figure Given Below Depicts the Foreign Exchange Market for British