Discuss the relationship between PPP and the Law of One Price
What will be an ideal response?
The law of one price applies to individual commodities while PPP applies to the general price level.
Proponents of PPP argue that its validity in the long run doesn't require the law of one price to hold exactly. When goods and services temporarily become more expensive in one country than in others, the demands for its currency and its products falls, pushing the exchange rate and domestic prices back in line with PPP and vice versa.
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Refer to the table above. If consumption expenditure increases to $200,000 in the next year, ________, all other variables remaining unchanged
A) gross domestic product will fall to $367,000 B) gross domestic product will increase to $367,000 C) gross domestic product will increase to $400,000 D) gross domestic product will fall to $400,000
If your total satisfaction increases when you consume another unit, your marginal utility must be
A) positive. B) increasing. C) decreasing. D) negative.
Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos reports that he would switch to a different brand. The survey asks what he would do if the price of all toothpastes increased. Juan Carlos reports that he must use toothpaste, so he would have to adjust his spending
elsewhere. These examples illustrate the importance of a. changes in total revenue in determining the price elasticity of demand. b. a necessity versus a luxury in determining the price elasticity of demand. c. the definition of a market in determining the price elasticity of demand. d. the time horizon in determining the price elasticity of demand.
The money demand curve will shift to the left if:
A. the nominal interest rate decreases. B. the price level increases. C. ATM machines are introduced. D. the nominal interest rate increases.