Question 2: Purchasing Power Parity Purchasing Power Parity theory (PPP) is a basis for economic comparison. With reference to the statement, answer the following questions in the form of an essay:

Format

Introduction

Paragraph 1 - part a answer

Paragraph 2 - part b answer

Paragraph 3 - part c answer

Conclusion

Questions:

A. Discuss Purchasing Power Parity and how can it be measured. (5 marks)

B. Examine the application of purchasing power parity with respect to the nature (tradable and non-tradable) of the products. (5 marks)

C. Examine two reasons as to why the law of one price may fail. (5 marks)