What are the predictions of the PPP theory with regards to the real exchange rates?
What will be an ideal response?
The real exchange rate between two countries is a broad summary measure of the prices one country's goods and services relative to the other's. PPP predicts that the real exchange rate never permanently changes, which is different from nominal exchange rates that deals with the relative price of two currencies.
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Ayanna grows herbs. Last year she grew 2,000 pounds of herbs in a year while using 250 square feet of land and 1 worker. This year she doubled her land to 500 square feet, doubled her workers to 2, and grew 4,500 pounds of herbs
She sells her rare, organic herbs for $50 a pound. She pays her workers $25,000 a year and rents her land for $100 per square foot for a year. These are her only costs. a) What was Ayanna's total cost last year and this year? b) What was Ayanna's average total cost last year and this year? c) Did Ayanna experience economies or diseconomies of scale?
A reduction in the aggregate price level, P, will most likely have which of the following effects?
A) a rightward shift in the IS curve B) a leftward shift in the IS curve C) an upward shift in the LM curve D) a downward shift in the LM curve