The purchasing-power parity theory suffers from the problem
A) Of choosing the appropriate price index
B) That it overlooks the influence of capital flows
C) That government policy may modify exchange rates
D) All of the above

Question

Quizplus · Accepted Answer

The purchasing-power parity theory suffers from all of the above problems. The appropriate price index is difficult to choose, capital flows can influence exchange rates, and government policy can modify exchange rates, all of which can affect the validity of the theory.

The Purchasing-Power Parity Theory Suffers from the Problem