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Q. Discuss the relationship between PPP and the Law of One Price.
Answer: The law of one price is applies to individual commodities while Purchasing Power Parity applies to the general price level.
Proponents of Purchasing Power Parity argue that its validity in the long run does not require the law of one price to hold exactly. When goods and services provisionally become more expensive in one country than in others the demands for its currency and its products reduce pushing the exchange rate and domestic prices back in line with Purchasing Power Parity and vice versa.
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Q. Describe alternative forms of capital inflow to finance external deficits and explain why these methods were used in different times? Answer: The capital inflows to facili
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Q. Should the IMF be abolished? Discuss. Answer: Arguments for eliminating the IMF must mention moral hazard and insistence on high interest rates and hasty structural
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