Is PPP a theory of exchange rate determination? Explain why or why not?
What will be an ideal response?
PPP is not a theory of exchange rate determination. It describes an equilibrium relationship between two endogenous variables—prices and exchange rates. As such, the PPP relationship should be viewed as a short-cut rather than a substitute for a complete determination of prices and exchange rates. Its main usefulness is in providing a guide to the general trend of exchange rates rather than day-to-day fluctuations.
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In the market for eggs, a removal of the price ceiling on eggs results in:
a. an increase in the demand for eggs. b. farmers supplying more eggs to the market. c. consumers demanding a larger quantity of eggs. d. farmers supplying less eggs to the market. e. consumers demanding a smaller quantity of eggs.
The total tariff revenue to the government of an imported good is found by adding the tariff to the quantity of the good imported
a. True b. False Indicate whether the statement is true or false