Discuss why the empirical support for PPP and the law of one price is weak in recent data
What will be an ideal response?
The failure of these propositions in the real world is related to trade barriers and departures from free competition, factors that can result in pricing to market by exporters. In addition, different definitions of price levels in different countries bedevil attempts to test PPP using the price indexes governments publish. For some products, including many services, international transport costs are so steep that these products become non-tradable (see page 425).
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What are two ways the government can use to maintain full employment in an open economy? Also give an example for each
What will be an ideal response?
All of the following are true regarding transfer prices except which one?
A) The transfer price is the internal firm price on an input that input-producing division charges the input-using division. B) The transfer price is the internal firm price on an input that input-using division charges the input-producing division. C) Law in many nations state that a transfer price must equal the price charged to an independent customer. D) Transfer prices can affect the taxes a firm must pay.
View Your World, a high-end window manufacturer, directly pays all of the transaction costs. The managers of View Your World are considering the profit-maximizing location for their plant. If locating the plant closer to its customers saves $7,000 in transportation costs of its windows to its customers, but causes an additional $7,500 in input transportation costs, View Your World ________ locate
its plant closer to its customers as the marginal benefit is ________ than the marginal cost. A) should; less B) should; greater C) should not; less D) should not; more
If the interest rate increases from 6 percent to 10 percent per year, each $100 saved will earn
a. $4 per year more than before b. $6 per year more than before c. $10 per year more than before d. $16 per year more than before e. $60 per year more than before