Explain why relative ppp is useful, International Economics

Assignment Help:

Q. Explain why Relative PPP is useful when comparing countries that base their price levels on different product baskets.

Answer: For instance If the U.S price level increase by 10% over a year while Europe's rises by only 5% relative Purchasing Power Parity (PPP) predicts a 5% depreciation of the dollar against the euro. This now cancels the 5% by which U.S inflation surpass European leaving the relative domestic and foreign purchasing powers of both currencies unchanged.

(E$/E,t - E$/E,t-1)/E $/E,t-1 = _US,t - _E,t among dates t and t - 1.

Relative Purchasing Power Parity (PPP) is useful when comparing countries that base their price levels on different product baskets. Relative Purchasing Power Parity (PPP) may be valid even when absolute PPP is not.


Related Discussions:- Explain why relative ppp is useful

Tariffs, what are the different types of tariffs?

what are the different types of tariffs?

International trade, INTERNATIONAL TRADE can be understood as follows B...

INTERNATIONAL TRADE can be understood as follows By the international trade, we signify the exchange of goods and services between different countries. For any individual count

Show the phenomenon of overshooting, Q. Using the DD - AA framework, show t...

Q. Using the DD - AA framework, show the phenomenon of overshooting.  Use a figure to explain when it is taking place. Answer: The figure below illustrates the phenomenon of ov

Expansion of international trade, Q. Even though it is very clear in the c...

Q. Even though it is very clear in the context of the Specific Factors model that an expansion of international trade will make losers as well as winners, economists still claim t

FDI, WHAT ARE THE METHODS OF FDI

WHAT ARE THE METHODS OF FDI

Explain why price levels are lower in poorer countries, Q. Explain wh...

Q. Explain why price levels are lower in poorer countries. Answer: One theory explicate the difference in prices on different endowments of capital and employment Bhagw

Conditions of domestic internal scale economies, Q. Why is it that an indu...

Q. Why is it that an industry is performing under conditions of domestic internal scale economies (applies to firm in the country) - then the resultant equilibrium can't be consis

Can currency boards make low-inflation policies credible, Q. Based on the c...

Q. Based on the case study, answer the following question: Can currency boards make low-inflation policies credible? Answer: Currency boards have the power to bring in anti-

True or false, in a mixed economy, the government tries to help meet the ne...

in a mixed economy, the government tries to help meet the needs of the public on a limited basis

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd