One of the major problems associated with using a price index to measure PPP is that:
A) the indexes include tradeable goods.
B) the indexes include nontradable goods.
C) the indexes include goods that are exported.
D) the indexes include goods that compete with imports.
E) All of the above

Question

Quizplus · Accepted Answer

The major problem associated with using a price index to measure Purchasing Power Parity (PPP) is that the indexes include nontradable goods. Nontradable goods, which cannot be easily bought or sold internationally, can distort PPP calculations because their prices can vary significantly from one country to another due to local factors, such as wages and rent, rather than international trade conditions.

One of the Major Problems Associated with Using a Price