What can explain the failure of relative PPP to hold in reality?
What will be an ideal response?
Government measures of the price level differ from country to country.
One reason for these differences is that people living in different countries spend their income in different ways.
Because of this inherent difference among countries, certain baskets will be affected more by price changes given their consumptions basket. For example, consumers in country, X, eats more fish relative to another country. More than likely, the government, upon determining a commodity basket to reflect preference, will have an overwhelming representation of fish in their basket. Any price level change in the fish market will be felt particularly by country X, and their overall price level will reflect this. Thus, changes in the relative prices of basket components can cause relative PPP to become distorted.
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A) depreciation. B) income. C) consumption. D) investment.
Fannie Mae and Freddie Mac both
A) sell bonds to investors and use the funds to purchase mortgages. B) help regulate the banking system. C) directly lend funds to people seeking mortgages. D) reduce access to funds for mortgages by purchasing existing mortgages.