What is the difference between endogenous and exogenous variables? In the equilibrium condition of PPP, which variables are endogenous and which are exogenous?
What will be an ideal response?
Endogenous variables are considered within a model, while exogenous variables are not directly considered within the model, and are thus taken as given. The difference between these kinds of variables is not related to their nature, but rather on the focus that the researcher has at the time. For example, the weather may be an exogenous variable in a model to determine crop yield, but an endogenous variable in a model that looks at the climate change effects of carbon emissions.
In the theory of PPP all variables are considered to be endogenous, that is, both price levels and the exchange rates are considered to be affected by a multitude of exogenous variables which we are not considering, and yet they are bound by the equilibrium condition that PPP represents.
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A fall in the demand for U.S. exports would result in a rise in the exchange rate when
a. there is no capital mobility and exchange rates are allowed to float. b. there is capital mobility. c. exchange rates are allowed to float. d. the country has a balance of payments surplus. e. both c and d.
Gross Domestic Product is the
a. least inclusive aggregate used to measure the economy. b. total of goods and services desired by consumers. c. most comprehensive measure of total output in the United States. d. most accurate measure of the trade balance of the United States.