How would it like to adjust the exchange rate

Reference no: EM131204760

(PPP) Richland and Poor land each have two industries: traded TVs and non traded house maintenance. The world price of TVs is R$100 (R$ = Richland dollar). Assume for now that the exchange rate is R$1 = 1 PP (PP = Poor land peso) and that prices are flexible. It takes 1 day for a worker in each country to visit and maintain 1 house. It takes 1 day for a Richland worker to make a TV, and 4 days for a Poor land worker.

a. What is the Richland wage in R$ per day? What is the Poor land wage in PP per day? In R$ per day? What is the ratio of Poor land to Richland wages in a common currency?

b. What is the price of a house maintenance visit in each country?

c. Assume people in each country spend half their income on TVs and half on house maintenance. Compute the CPI (consumer price index) for each country given by the square root of (TV price) times (gardening price).

d. Compute the standard of living in each country by dividing local currency wages by the CPI from part (c)? Is Poor land really as poor as suggested by the last answer in part (a)?

e. Productivity now doubles in the Poor land TV industry, all else equal. How many days does it now take for Poor land workers to make a TV? What happens to the wage in Poor land? The price of haircuts? The CPI?

f. If the central bank of Poor land wants to avoid inflation in this situation, how would it like to adjust the exchange rate?

Reference no: EM131204760

Questions Cloud

Financial risk and an operational risk : What is the difference between a financial risk and an operational risk?

Conduct a service firm audit for a local business : MKT203 Services Marketing Assessment: Service Firm Audit. Description: This assessment requires students to adopt the position of marketing consultants and conduct a service firm audit for a local business

Which criterion would you eliminate and why : If you were a policy maker in a country seeking to join the EMU, which criterion would you eliminate and why?

Discuss the importance of understanding required datatypes : Discuss the importance of understanding the required datatypes to be used in microcontroller applications. Include an explanation of why utilization of proper datatypes is even more critical for embedded applications.

How would it like to adjust the exchange rate : Productivity now doubles in the Poor land TV industry, all else equal. How many days does it now take for Poor land workers to make a TV? What happens to the wage in Poor land? The price of haircuts? The CPI?

Determining the type of businesses : Look at the latest census data and identify at least 2 areas of the country that are growing. What type of businesses would you recommend enter the growing markets?

Demonstrates the potential interaction of the arduino board : Explain the process you used in this lab that demonstrates the potential interaction of the Arduino board and other devices. Why is it important to understand the processing of the characters and strings?

Calculate the sharpe ratio for these trades : Can the trader's predictable profits be explained by trading frictions? By risk aversion?

Argument that certain kinds of cultures : Develop the argument that certain kinds of cultures, political and economic systems are, by their nature, resistant to economic development through international trade.

User Account

All Pages