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

Balance of trade, Explain the complexities in the annalysis of balance of p...

Explain the complexities in the annalysis of balance of payment equilibrium

Offer Curve.., How to derive offer curve and its difference from reciprocal...

How to derive offer curve and its difference from reciprocal demand curve

Effects of ongoing inflation based on the ppp theory, Q. Discuss th...

Q. Discuss the effects of ongoing inflation based on the PPP theory. Answer: Other things equivalent money supply growth at a constant rate eventually results in ongoi

Evaluate the economic policies of juan peron, Q. Evaluate the economi...

Q. Evaluate the economic policies of Juan Peron, the husband of the famous Evita? Answer: Once Peron got the power in 1946 in Argentina the economy that at that time

Hoe to calculate balance of payments, Q. Explain why in practice the extent...

Q. Explain why in practice the extent to which a measured balance of payments disparity, either a surplus or a deficit, will affect home and foreign money supply is quite uncertain

Effects of german unification on germanys interest rate, Q. Explain the pur...

Q. Explain the purpose of the following figure. Show the effects of German unification on Germany's interest rate. Answer: The major purpose is to show that different i

Explain the global firms and the borderless global economy, Explain the Glo...

Explain the Global Firms and the Borderless Global Economy

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