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

Discuss the costs and benefits of fdi to host country, Q. Discuss the costs...

Q. Discuss the costs and benefits of FDI to host country? Benefits to host country Availability of scarce factors of production Improvement in the balance of payment Strengthen

Explain the advantage a and disadvantage of globalization, Q. Explain the a...

Q. Explain the advantage a and disadvantage of globalization? Advantages - 1. Economic growth 2. Lower cost 3. Improved availability of goods and services 4. Glob

International trade, why is international trade important for south africa

why is international trade important for south africa

Depicts the us gnp and its components, Q. What can you learn from the figur...

Q. What can you learn from the figure below, which depicts the US GNP and its components for the year 1997? Answer: The U.S. GNP is about 8 trillion expenditure represents

Trade, trade experience of developing countries

trade experience of developing countries

Explain why the polish economy has done better, Q. Contrast the crisis in P...

Q. Contrast the crisis in Poland and Russia. Explain why the Polish economy has done better? Answer: With the end of the 1990s a handful of East European economies including

Alternative theories of trade, How can I present the theories step by step ...

How can I present the theories step by step in an assignment?

Welfare effects of tariff, Welfare Effects of Tariff can be understood as f...

Welfare Effects of Tariff can be understood as follows: It is important to understand what the welfare effects for the tariff are. While a tariff might seem desirable because i

Determine the amount of money an individual desires to hold, Q. What are th...

Q. What are the factors that determine the amount of money an individual desires to hold? Answer: Three major factors that are first one the expected return the asset offers co

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