Explain the concept of purchasing power parity
What will be an ideal response?
The purchasing power parity framework is used to convert aggregate incomes into common units. The idea here is to adjust aggregate incomes so that a dollar can purchase the same bundle of commodities in any country. To perform this adjustment, we choose a representative bundle of commodities and calculate what it costs in different countries. Then, using the cost of the bundle in each country relative to its cost in the United States, we obtain a measure of each country's aggregate income in PPP-adjusted U.S. dollars.
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Everything else remaining the same, in the foreign exchange market, which of the following increases the supply of U.S. dollars?
A) The U.S. interest rate rises. B) The U.S. interest rate differential increases. C) The expected future exchange rate rises. D) The European interest rate rises. E) The exchange rate falls.
List three reasons why a firm might experience economies of scale
What will be an ideal response?