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

Project, Visit to village panchayat for agriculture based project

Visit to village panchayat for agriculture based project

Explain the asian financial crisis, Q. Explain the Asian financial crisis a...

Q. Explain the Asian financial crisis as it unfolds beginning with the valuation of the Thai currency in July 1997, followed by the Malaysian, South Korean and Indonesian crises.

Porter competitive forces model, Porter Competitive Forces Model:   ...

Porter Competitive Forces Model:         Effectively dealing with the competitive forces that exist within its industry lead to a successful organization. The organization i

Change in money supply creates immediate demand and cost, "Although the pri...

"Although the price levels appear to display short-run stickiness in many countries, a change in the money supply creates immediate demand and cost pressures that eventually lead t

Explain the difference between given expressions, Q. Explain the difference...

Q. Explain the difference between the following two expressions: Y = C(Y d ) + I + G + CA(EP*/P, Y d ) and Y = C + I +G + CA Answer: The first expression corresponds to a

Open international market, Q. The U.S. is most probably the most open inte...

Q. The U.S. is most probably the most open international market among the industrialized countries. What then does the U.S. have to took by joining the WTO? Answer: There ar

Process of monetary unification, Q. "Given that labor remains relatively im...

Q. "Given that labor remains relatively immobile within Europe, the European Union's success in liberalizing its capital flows may have worked perversely to worsen the economic sta

What are the main aspects of economic life, Q. What are the main points of...

Q. What are the main points of economic life that macroeconomics analysis is most concerned with? Answer: There are four major aspects that are saving, unemployment, trade imb

Law of demand, Explain the law of demand. Briefly discussed the exception t...

Explain the law of demand. Briefly discussed the exception to the law of demand

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