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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. If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed at E 0 ? An
explained with example
Argus Savings and Loan Association began in 1956 in Hometown. As is typical of savings and loan associations, Argus accepts the savings of individuals and organisations and uses th
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I am trying to complete this homework assignment and I need to use an example to describe and explain the classical theory of international trade, could you guys help me out?
how is exchange rate determined.
Q. Explain how the money markets of two countries are linked through the foreign exchange market. Answer: The financial policy actions by the Fed affect the U.S. interest rate
what is the current economic situation in the world?
WHATE IS THE PROPERTY OF OFFER CURVE OF A COUNTRY
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