What do economists mean by the law of one price

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1. What does the purchasing power of a money mean? How can it be measured?

2. Suppose the government releases information that causes people to expect that the purchasing power of a money in the future will be less than they previously had expected. What will happen to the exchange rate today? Why?

3. What is the difference between a price level and a price index?

4. What do economists mean by the law of one price? Why might the law of one price be violated?

5. What is the value of the exchange rate that satisfies absolute PPP?

6. If the actual exchange rate for the euro value of the British pound is less than the exchange rate that would satisfy absolute PPP, which of the currencies is overvalued and which is undervalued? Why?

Reference no: EM13897823

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