Country Currency Currency per Canadian Dollar Canadian Price Index Country Price IndexSalandErgadVestikaVenabo8.00100700tt125.0010025,0001200Tokens10.00100Bling6.5Atranlda100650Baznun40.001004000Refer to Table 1. What countries in the table does purchasing-power parity hold for?O Ilda andVestikaSaland and ErgadAtran and IldaSaland and Vestika

Meaning of Purchasing Power Parity (PPP): The term purchasing power parity refers to the situation…

Country Saland Curreney Venabo Currency per Canadian Dollar Canadian Price Index Country Price Index 8.00 100 Ergad Vestika 125.00 10.00 700 25,000 1200 tt 100 Tokens 100 Atran Bling 6.5 100 100 650 4000 Ida Baznun 40.00 Refer to Table 1. What countries in the table does purchasing-power parity hold for? O Ilda andVestika Saland and Ergad O Atran and llda O Saland and Vestika

Country Saland Curreney Venabo Currency per Canadian Dollar Canadian Price Index Country Price Index 8.00 100 Ergad Vestika 125.00 10.00 700 25,000 1200 tt 100 Tokens 100 Atran Bling 6.5 100 100 650 4000 Ida Baznun 40.00 Refer to Table 1. What countries in the table does purchasing-power parity hold for? O Ilda andVestika Saland and Ergad O Atran and llda O Saland and Vestika

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter21: International Finance

Section: Chapter Questions

Problem 3QP

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A case study in the chapter analyzed purchasingpower parity for several countries using the pricc ofBig Macs. Here arc data for a few more countries: a. For each country, compute the predicted exchangerate of the local currency per U.S. dollar. (Recallthat the U.S. price o( a Big Mac was $4.93.)b. According to purchasing-power parity, what is thepredicted exchange rate between the Hungarianforint and the Canadian dollar? What is the actualexchange rate?c. How well docs the theory of purchasing-powerparity explain exchange rates?
Explain absolute and relative purchasing power parity. Write down their equationsDoes empirical evidence support these theories?
E1 The higher the value of e, the ______________(More or less) units of foreign currency a dollar buys. When a nominal exchange rate goes up, we say the domestic currency is _________(appreciating or depreciating) against the foreign currency. When a nominal exchange rate goes down, we say that the domestic currency is _________(depreciating or appreciating) against the foreign currency.
What would be the effect of a devaluation on a country’s imports and exports? If a country imports most ofthe goods included in the basket of goods and servicesused to calculate the CPI, what do you think the effectwill be on this country’s inflation rate?
In Delhi, a haircut costs 135 rupees (INR). Thesame haircut costs 15 Singapore dollars (SGD) inSingapore. At an exchange rate of 50 IN per SGD,what is the price of an Indian haircut in terms of aSingapore haircut? Keeping all else equal, howdoes this relative price change if the INRdepreciates to 55 INR per SGD? Compared to theinitial situation, does a Singapore haircut become more or less expensive in relation to an Indianhaircut?
Purchasing-power parity holds between the nationsof Ectenia and Wiknam, where the only commodityis Spam.a. In 2020, a can of Spam costs 4 dollars in Ecteniaand 24 pesos in Wiknam. What is the exchange ratebetween Ectenian dollars and Wiknamian pesos?b. Over the next 20 years, inflation is expected to be3.5 percent per year in Ectenia and 7 percent peryear in Wiknam. If this inflation comes to pass,what will the price of Spam and the exchangerate be in 2040? (Hint: Recall the rule of 70 fromChapter 27.)c. Which of these two nations will likely have ahigher nominal interest rate? Why?d. A friend of yours suggests a get-rich-quickscheme: Borrow from the nation with the lowernominal interest rate, invest in the nation with thehigher nominal interest rate, and profit from theinterest-rate differential. Do you see any potentialproblems with this idea? Explain.
Suppose the United States decides to subsidize theexport of U.S. agricultural products, but it does notincrease taxes or decrease any other governmentspending to offset this expenditure. Using a threepanel diagram, show what happens to nationalsaving, domestic investment, net capital outflow, theinterest rate, the exchange rate, and the trade balance.Also explain in words how this U.S. policy affects theamount of imports, exports, and net exports.
Sometimes, analysts use the price of specific products in different locations to compare currency valuation and purchasing power. For example, the Big Mac Index com- pares the purchasing power parity of many countries based on the price of a Big Mac. Locate the latest edi- tion of this index that is accessible. Identify the five countries (and their currencies) with the lowest pur- chasing power parity according to this classification. Which currencies, if any, are overvalued?
1. What explains how the dollars per euro exchange rate will change in the future if the exchange rate is wxpected to rise. 2. What is addressed by the USMCA? 3. Country A has a GDP of 60,000,000 and country B has a per capita of 2,000. If the populations of countries a and b are 40,000 and 20,000 respectively, which country is most developed based on per capita GDP? 4. how can a difference in Gini coefficients for the United States and china be interpreted 5. which of the following trends have followed globalization?
What happens to the balance of trade if the nominal exchange rate depreci-ates?
Using the data calculate the balance on current account for this economy. The value of the current account is: $ Round your solution to the nearest whole number and be sure to include a negative sign if necessary. Current Account Value Balance Exports of Goods $500 Imports of Goods 1600 Balance of Trade - 1100 Exports of Services Imports of Services Balance of Services 350 -300 50 50 Income Received on 400 Investments Income Payments on -700 Investments Net Income on -300 Investments Net Transfers -100
Q.1.10 Which of the following statements is correct? (2)(1) When a British firm invests in a bicycle manufacturing facility in South Africa,the amount concerned is entered as an inflow on the current account of theSouth African balance of payments.(2) When someone purchases a second‐hand car, the transaction is included inthe calculation of GDP in the year the sale took place.(3) A deficit on the current account of the balance of payments indicates thatthe country exported more than it imported during the period in question.(4) In the base year, the value of nominal GDP is equal to the value of real GDP.