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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.
Q. Using a figure illustrate the simultaneous equilibrium of the foreign exchange and domestic money markets when the exchange rate is fixed at E0 and is expected to remain fixed a
The Concept of Comparative Advantage is explained below: To illustrate the concept of the comparative advantage, we take the instance of two equi-sized equi-endowment countries
Q. What is an SDR? Answer: An SDR abbreviation of Special Drawing Right at the IMF and holds a place as a world reserve currency some countries especially those that do
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