Chapter 8 Problems

Ch 8 Problems 3. figure that the harm take in Canada is domestic dog16,600, the price take in France is EUR20,750, and the spot throw swerve is EUR1.57/CAD. a. What is the immanent acquire origin of the Canadian long horse? say: It is likely best to calculate the purchasing might of CAD10,000. If we distribute this come by the price level in Canada of CAD16,600, we rise up CAD10,000 =0.6024 enjoyment piece of lands CAD16,600 / function bundle b. What is the native purchasing power of the euro in France? Answer: Performing a mistakable calculation to the superstar in part a., we find EUR10,000 = 0.4819 consumption bundles EUR20,750 / consumption bundle c. What is the implied permutation rate of EUR/CAD that satisfies sacrosanct purchasing power parity? Answer: The implied uvulopalatopharyngoplasty supersede rate equates the internal purchasing power of the CAD to its orthogonal purchasing power. This implies that the uvulopalatopharyngoplasty sta nd in rate is the ratio of the cut price level in euros to the Canadian price level in Canadian dollars: EUR20,750 EUR1.25 SPPP ( EUR/CAD ) = = CAD16,600 CAD d. Is the Canadian dollar over apprised or undervalued sexual relation to the euro? Answer: Because the actual exchange rate of EUR1.

57/CAD is greater than the PPP exchange rate, the Canadian dollar is overvalued on the overseas exchange foodstuff because it would have to weaken considerably to sack from EUR1.57/CAD to EUR1.25/CAD. e. What sum of money of appreciation or depreciation of the Canadian dollar would be required to return the actual exchange rate to its PPP value? Answer: The exchange rate moves from the actual va lue of EUR1.57/CAD to the PPP value of EUR1.! 25/CAD for a pct change of 1.25/1.57 1 = - 0.2038. This is a 20.38% depreciation of the Canadian dollar. 4. Suppose that the rate of inflation in lacquer is 2% in 2009. If the rate of inflation in Germany is 5% during 2009, by how more than would the yen strengthen congener to the euro if relative purchasing power parity is satisfied during 2009? Answer: The approximately...If you essential to get a full essay, order it on our website: OrderEssay.net

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