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Explain the purchasing power parity, both of the absolute and relative versions. What causes the deviations from the purchasing power parity?
Answer: The absolute version of purchasing power parity abbreviated as PPP:
S = P$/P£.
The relative version is:
e = p$ - p£.
PPP or purchasing power parity can be violated if there are barriers to international trade or if people in dissimilar countries have different consumption taste. PPP is the law of one price useful to a standard consumption basket.
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Ask question Open Quick Links Quick Links Page Landmarks Content Outline Keyboard Shortcuts Global Menu Top Frame Tabs My UMass Amherst Tab 1 of 2 (active tab) Help & Resource
discuss the applicability
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