Explain why Relative PPP is useful when comparing countries that base their price levels on different product baskets
What will be an ideal response?
For Example: If the U.S. price level rises by 10% over a year while Europe's rises by only 5%, relative PPP predicts a 5% depreciation of the dollar against the euro. This just cancels the 5% by which U.S. inflation exceeds European, leaving the relative domestic and foreign purchasing powers of both currencies unchanged.
( - )/ = ( )US,t - ( )E,t between dates t and t - 1.
Relative PPP is useful when comparing countries that base their price levels on different product baskets. Relative PPP may be valid even when absolute PPP is not.
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Figure 9.1 shows three aggregate demand curves. A movement from point b to point c could be caused by a(n)
A) decrease in government spending. B) decrease in the price level. C) decrease in taxes. D) increase in the money supply.
In terms of a nation's production possibilities frontier, what impact does international trade have?
A) International trade shifts the nation's production possibilities frontier outward. B) International trade shifts the nation's production possibilities frontier inward. C) International trade allows the nation to consume at a point outside its production possibilities frontier. D) International trade shifts the production possibilities frontier outward for the goods that are exported and inward for the goods that are imported. E) International trade shifts the production possibilities frontier outward for the goods that are imported and inward for the goods that are exported.
Refer to Figure 14-4. In a real world situation involving Rainbow Writer and Odeon, what scenario below might permit Rainbow Writer to rationally refuse an offer from Odeon of $40 per copy of the software package?
A) Odeon is considering new distribution outlets for its products. B) Odeon hires a software developer to begin developing its own proprietary engraving software. C) Odeon is also negotiating with FastWrite, Rainbow Writer's chief rival. D) Odeon's competitors are also interested in bundling Rainbow Writer's software.
If a group of professionals successfully lobby the government to require workers in their profession to have a license, the most likely result will be a(n)
a. reduction in the supply of such professionals and a decrease in their wage rate b. reduction in the demand for such professionals and an increase in their wage rate c. reduction in the supply of such professionals and an increase in their wage rate d. reduction in the demand for such professionals and a decrease in their wage rate e. increase in the demand for such professionals and an increase in their wage rate