Explain why Relative PPP is useful when comparing countries that base their price levels on different product baskets
What will be an ideal response?
For Example: If the U.S. price level rises by 10% over a year while Europe's rises by only 5%, relative PPP predicts a 5% depreciation of the dollar against the euro. This just cancels the 5% by which U.S. inflation exceeds European, leaving the relative domestic and foreign purchasing powers of both currencies unchanged.
( - )/ = ( )US,t - ( )E,t between dates t and t - 1.
Relative PPP is useful when comparing countries that base their price levels on different product baskets. Relative PPP may be valid even when absolute PPP is not.
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Z is a normal good. The equilibrium price and quantity of Z in the year 2011 was $25 and 60 units, respectively. In 2014, the equilibrium price of Z had increased to $35 but the equilibrium quantity had decreased to 50 units
Other things remaining the same, which of the following could explain this change? A) Shift of the supply curve of Z to the left B) Shift of the supply curve of Z to the right C) Shift of the demand curve for Z to the left D) Shift of the demand curve for Z to the right
What does it mean to say that an individual's preferences are transitive?
What will be an ideal response?