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

Discuss main factors affecting position of the dd schedule, Q. Disc...

Q. Discuss the main factors affecting the position of the DD schedule. Answer: The level of government taxes, demand, and investment and the domestic and foreign price

The wage rate, Q. Suppose the relative price of good 1 falls relative to th...

Q. Suppose the relative price of good 1 falls relative to the price of.  What happens to the wage rate? Answer: The labour component of the price of 1 is bigger than that of p

Risk of financial crisis, Q. Discuss the role of more "transparency" ...

Q. Discuss the role of more "transparency" in reducing the risk of financial crisis. Answer: Must discuss the Asian crisis where foreign banks lent money to Asian enter

Rasons for economic miracle of east asian countries, Q. Illustrate the rea...

Q. Illustrate the reasons for the economic "miracle" of the East Asian countries between 1960 and 1997. Is it only due to the common Asian practice of industrial policy and busin

Explain the law of diminishing marginal utility, Question 1 What are the m...

Question 1 What are the main areas of microeconomics that business managers must be familiar with in performing their managerial functions effectively and efficiently? Questio

Domestic money market, Q. "Under floating rates, the economy is more vulner...

Q. "Under floating rates, the economy is more vulnerable to shocks coming from the domestic money market." Discuss. Answer: It is true statement, under floating rates an incr

How are such cartel expected to help the developing country, Q. Developing...

Q. Developing countries have often attempted to establish cartels so as to counter the perceived or actual inexorable downward push on the prices of their exported commodities. OP

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