What are the main reasons for deviations from PPP? Give, at least, 5 reasons with a short explanation
What will be an ideal response?
? The presence of non-traded goods prices in price indexes
? Financial asset prices adjust faster than goods prices due to the slow adjustment in goods markets
? Relative price changes
? Different consumption bundles across countries
? Differentiated goods
? Shipping costs, tariffs
? News, unexpected events
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Suppose the price level falls. The result is that the:
a. aggregate supply curve would shift to the right. b. aggregate supply curve would shift to the left. c. general price level would rise causing a movement up the aggregate demand curve. d. aggregate demand curve would slope downward because of the real balances effect.
In order to simplify a complex situation, economic models often treat constraints as unalterable
Indicate whether the statement is true or false