Suppose a Lexus LS400 and a Mercedes C300 are considered to be of equivalent value. The Lexus sells for 6,000,000 Japanese yen in Tokyo and the Mercedes sells for 50,000 euros in Stuttgart. Using the purchasing power parity theory, explain the exchange rate between the yen and the euro
Purchasing power parity theory holds that equivalent goods should have the same price once the exchange rate is calculated. In this example, the exchange rate between yen and euro must yield a yen price translated into euros that is exactly 50,000 euros. The exchange rate that makes 6,000,000 yen equal to 50,000 euros is 120 yen = one euro. Using this exchange rate the price of a Mercedes in yen is 6,000,000 (50,000 × 120) and the price of a Lexus in euros is 50,000 euros (6,000,000/120). Purchasing power parity is used primarily as a predictor of long-run exchange rates and not as a means to predict day-to-day changes in exchange rates.
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A) rises, the money demand schedule shifts to the right B) rises, the money demand schedule shifts to the left C) rises, we move downward along the money demand schedule D) falls, the money demand schedule shifts to the left E) falls, we move upward along the money demand schedule
A tax on sellers:
A. causes equilibrium price and quantity to decrease. B. shifts the demand curve vertically downwards by the amount of the tax, but does not affect the supply curve C. shifts the supply curve vertically upwards by the amount of the tax, but does not affect the demand curve. D. causes a shortage in the market.
Sticky wages cause the:
A. short-run aggregate supply curve to slope upward. B. short-run aggregate supply curve to slope downward. C. long-run aggregate supply curve to slope upward. D. long-run aggregate supply curve to slope downward.
For the monopsonist, marginal expenditure is greater than the wage rate because the monopsonist
A) pays a wage higher than that paid in a competitive market. B) chooses the perfectly competitive quantity of labor. C) must increase the wage to all units of labor to attract more units of labor. D) must take the wage as given by the market.