What can explain failure of relative ppp to hold in reality, International Economics

Assignment Help:

What can explain the failure of relative PPP to hold in reality?

Answer: Government procedures of the price level differ from country to country.

One cause for these differences is that people living in different countries spend their income in different manners. For the reason that of this inherent difference between countries certain baskets will be affected more by price changes given their consumptions basket.  For illustration consumers in country X eat more fish compared with consumers in another country. In excess of likely the government upon determining a commodity basket to reflect preference will have an overwhelming representation of fish in their basket.  Any price level vary in the fish market will be felt particularly by country X and their overall price level will reflect this.  Therefore the changes in the relative prices of basket components can cause relative PPP to become distorted.

 


Related Discussions:- What can explain failure of relative ppp to hold in reality

Fiscal policies to both internal and external balances, Q. Using the II - X...

Q. Using the II - XX framework, show using a figure that fiscal policies by themselves cannot bring the economy to both internal and external balances. Answer: Starting at poi

What is securitization, Q. What is securitization? Answer: The ...

Q. What is securitization? Answer: The term refers to monetary instruments in which bank assets are repackaged in readily marketable forms These kinds of "derivatives"

International Trade, What constitutes the basis for trade? What are the ga...

What constitutes the basis for trade? What are the gains from trade in terms of production and consumption? Use theories and examples from a country of your choice.

Trade barriers, why do nations impose trade barriers

why do nations impose trade barriers

Explain how money markets linked foreign exchange market, Q. Explain how th...

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

How dd-aa schedule affect in the short run, Q. Explain how an increase in g...

Q. Explain how an increase in government spending would affect the DD-AA schedule in the short run. Answer: A raise in government spending will raise aggregate demand, which wi

Expectations prepared by the heckscher-ohlin model, Q. Why do you suppose ...

Q. Why do you suppose that South-South trade does not conform in volume, but does conform in pattern with expectations prepared by the Heckscher-Ohlin model? Answer: The patt

Internal economic environment, In the International Medical Center there ar...

In the International Medical Center there are internal influences. The strategic capability of the project consists of competencies and resources. The strengths and weaknesses of p

What are the rationales for interest and currency swaps, Question : (a)...

Question : (a) What are the rationales for interest and currency swaps? (b) Suppose a Swiss firm, SandyCom Ltd, wants to invest in the U.S. The Swiss firm needs US dollars

Coordination of monetary policies and greater exchange rate, Q. What prompt...

Q. What prompted the EU countries to seek closer coordination of monetary policies and greater exchange rate stability in the late 1960s? Answer: 1. To improve Europe's role

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