The relative form of purchasing power parity (PPP) accounts for the possibility of market imperfections such as transportation costs, tariffs, and quotas in establishing a relationship between inflation rates and exchange rate changes.

Question

Quizplus · Accepted Answer

This statement is true. The relative form of PPP takes into account market imperfections such as transportation costs, tariffs, and quotas that can affect the prices of goods and services in different countries, and adjusts exchange rates accordingly to reflect the relative purchasing power of currencies.

The Relative Form of Purchasing Power Parity (PPP) Accounts for the Possibility