The empirical tests of purchasing power parity

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Reference no: EM131868106

1. Two general conclusions can be made from the empirical tests of purchasing power parity (PPP):

a) PPP holds up well over the long run but poorly for the short run and the theory holds better for countries with relatively low rates of inflation.

b) PPP holds up well over the short run but poorly for the long run and the theory holds better for countries with relatively low rates of inflation.

c) PPP holds up well over the long run but poorly for the short run and the theory holds better for countries with relatively high rates of inflation.

d) PPP holds up well over the short run but poorly for the long run and the theory holds better for countries with relatively high rates of inflation.

2. Phillips NV produces CPAP machines and exports them to the United States. Last year the exchange rate was USD1.25/EUR and Phillips charged EUR120 per machine in Euroland and USD150 per machine in the United States. Currently, the spot exchange rate is USD1.45/EUR and Phillips is charging USD160 per machine. What is the degree of pass-through by Phillips NV on their CPAP machines?

a) 92%

b) 33.3%

c) 4.1%

d) 41.7%

Reference no: EM131868106

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