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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.
Is a depreciation of the dollar/euro exchange rate correlated with a decrease in the dollar return on U.S. deposits? Answer: No, suppose that the Interest Parity is maintained
Q. It is still the conventional wisdom in the U.S. that compliance with NAFTA needs is having a deleterious effect on U.S. highway safety standards, on U.S. pollution and other en
Q. Describe the role of offshore banking and of offshore currency (eurocurrencies) trading. Answer : Both have mushroomed because of increased international trade inc
Canadian consumers have 50 dollar in come this is eual to the gross domestic product. they spand 35 dollars on comuser goods (25 on canadian goods annd 10 on imports) they save 8
Q. Suppose Australia, a land (K)-abundant country and Sri-Lanka, a labor(L)- abundant country both produce labor and land intensive goods with the similar technology. Following t
Q. If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed at E 0 ? An
Q. Discuss studies based on the interest parity conditions. Answer: Generally the formula doesn't hold and isn't a good predictor of future devaluations. Even poorer it
what does the law of reciprocal states about and how does it differ from the theories of smith and ricardo
Postwar trade theory
1. Explain why many Asian countries set up Export Processing Zones and why China set up Special Economic Zones. What are the similarities and differences between EPZs and SEZs?
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