Why is relative purchasing power parity more likely to hold

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Reference no: EM131917700

Problem

1. Why is relative purchasing power parity (PPP) more likely to hold in a hyperinflationary period than in a more "normal" period of price behavior?

2. Do you think that the monetary approach is a satisfactory explanation of a country's exchange rate? Why or why not?

3. In the portfolio balance model, what effect, other things equal, will a foreign government's budget deficit financed by issuing bonds have on the home country's currency value and why? (Assume a flexible exchange rate.)

Reference no: EM131917700

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