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Homework answers / question archive / What are some of the evidence against the purchasing power parity? A
What are some of the evidence against the purchasing power parity? A. recent advances in technology make it easier to directly compare commodity prices. B. tariffs and quotas imposed on international trade. C. interest rate adjustments by central banks. D. lower shipping costs can make it easier to directly compare commodity prices. E. all of the options
Which factor(s) can influence a change in a currency’s spot rate? A. Change in the differential between the domestic inflation and the foreign country’s inflation. B. Change in the differential between the domestic interest rate and the foreign country’s interest rate. C. Change in the differential between the domestic country income level and the foreign country’s income level. D. Change in expectations of future exchange rates. E. All of the above.
Ans) B. tariffs and quotas imposed on international trade.
Purchasing power pairty will not hold in presence of transaction cost. Thus if tariff and quotas are imposed on the trade PPE theory will not work
Answer: B. Change in the differential between the domestic interest rate and the foreign country’s interest rate.