Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?
Purchasing-power parity works well in helping us explain long-term trends in exchange rates, and in explaining what happens to exchange rates during hyperinflation. It is not completely accurate because (1) not all goods are easily traded, and (2) even tradable goods are not always perfect substitutes when they are produced in different countries.
You might also like to view...
Explain how consumer surplus changes when a monopoly price discriminates
What will be an ideal response?
Pension funds ________
A) acquire access to funds by accepting deposits then using these monies to lend to households and firms B) raise funds by selling commercial paper then lend these funds to consumers C) are a special type of mutual fund D) acquire access to monies through the payment of premiums by employees