Which one of the following statements is the MOST accurate?
A) Departures from PPP are similar in both the short run and long run.
B) Departures from PPP are even greater in the long run than in the short run.
C) Departures from PPP are always greater in the short run than in the long run.
D) It is hard to tell whether departures from PPP are greater in the short run than in the long run.
E) Departures from PPP may often be greater in the short run than in the long run.

Question

Quizplus · Accepted Answer

While departures from PPP can occur in both the short and long run, empirical evidence suggests that they may be more common in the short run due to factors such as changes in exchange rates and relative price levels. However, in the long run, market forces tend to push exchange rates toward PPP equilibrium, reducing departures from PPP over time. Therefore, option E is the most accurate as it reflects the possibility of greater departures in the short run but also accounts for the convergence toward PPP in the long run.

Which One of the Following Statements Is the MOST Accurate