Does the existence of non-tradable goods allow for deviations from Purchasing power Parity?
What will be an ideal response?
Yes, the existence of nontradables allows deviations from PPP. This is because the price of a nontradable is determined entirely by its domestic supply and demand curves, and in turn fluctuations in demand and supply for these good will affect the price level. Examples include housing, haircut, services etc.
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How might inflation, even if fully anticipated, prevent the classical dichotomy from holding, even in the long run?
What will be an ideal response?
If government imposes an excise tax on a good and the tax burden is borne equally by buyers and sellers, then
A) price elasticity of demand is unitary. B) price elasticity of supply is unitary. C) the absolute values of price elasticities of demand and supply are equal. D) None of the above
A firm's short-run supply curve is its marginal cost curve above its average total cost curve.
Answer the following statement true (T) or false (F)
A reduction in the reserve ratio, ?, will cause
A) an increase in the monetary base (H). B) a reduction in H and a reduction in the money multiplier. C) an increase in the money multiplier. D) a reduction in the money multiplier.