Chapter 10 presents the Big Mac Index. While it is a clever illustration, the Big Mac Index is not really a good example to use to explain the theory of purchasing power parity. Why not?
What will be an ideal response?
The theory of purchasing power parity really looks at a basket of goods, not one single good, and would consider goods that are transportable since it is an extension of the law of one price. Big Macs are really not transportable. Finally, the price of the Big Mac is highly dependent on local costs such as wages, taxes and rent.
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In an open economy, an increase in savings because of concerns about the future should cause the domestic real interest rate to ________ and should cause net exports to ________
A) rise; rise B) rise; fall C) fall; rise D) fall; fall
One reason the colonials complained about the Navigation Acts was
(a) the "shortage" of money; they believed the trade deficits of the colonies were bleeding them of coins. (b) the "surplus" of money that was causing inflation; they believed the trade deficits were flooding the colonies with coins. (c) the Acts' not allowing foreign coins, which created a "shortage" of foreign coins relative to British coins. (d) the Acts' requirement that only paper money would circulate in the colonies, without the backing of gold.
Opening trade between nations enables each nation's consumption possibilities to go beyond the confines of its own production possibilities curve
a. True b. False Indicate whether the statement is true or false
Scarcity and choice are the basic problems of economics; the supply and demand mechanism is the basic investigative tool of economics
a. True b. False Indicate whether the statement is true or false