Explain purchasing power parity, International Economics

Assignment Help:

Explain Purchasing Power Parity.

 Answer:  PPP () states that the exchange rate between two countries' currencies equals the ratio of the countries' price levels.

A decrease in a currency's domestic purchasing power that is an increase in the domestic price level will be associated with proportional currency depreciation in the foreign exchange market and vice versa.

E$/E = PUS/PE

where P is the price of the reference commodity basket Rearrange:

PUS = (E$/E) x (PE)

Therefore, Purchasing Power Parity (PPP) asserts that all countries' price levels are equal when measured in terms of the same currency.

 


Related Discussions:- Explain purchasing power parity

Example of zero-tariff free trade policies, Q. Presumably, since the Unite...

Q. Presumably, since the United States is a large country in many of its international markets, a positive optimum tariff exists for this country. It follows thus that when any l

Describe the role of offshore banking, Q. Describe the role of offs...

Q. Describe the role of offshore banking and of offshore currency (eurocurrencies) trading. Answer : Both have mushroomed because of increased international trade inc

Explain theoretical and methodological aspects , Explain Theoretical and me...

Explain Theoretical and methodological aspects of international economic relations

Evaluate the credit risk analysis, Question : Banks find it more profit...

Question : Banks find it more profitable to lend money as the margin on lending is much higher than any other banking activity. However, banks have to assess credit risks and t

Income distribution effects of trade, Q. "The H.O. model remains useful as...

Q. "The H.O. model remains useful as a way to predict the income distribution effects of trade." Discus s. Answer: The Stolper-Samuelson theorem, one of the basic theorems ari

FOREX, part of the return on the investment comes from the asset itself and...

part of the return on the investment comes from the asset itself and part from the currency of the foreign currency. agree or disagree?

Assignment on International Economics, Can you please sent me Students Assi...

Can you please sent me Students Assignment on Above Title

Opportunity cost, what is the criticism of opportunity cost

what is the criticism of opportunity cost

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