Author Question: Discuss why the empirical support for PPP and the law of one price is weak in recent data. What ... (Read 62 times)

formula1 · **on:** Jun 30, 2018

Discuss why the empirical support for PPP and the law of one price is weak in recent data.

What will be an ideal response?

Question 2

If there is initially an

A) excess demand for money, the interest rate will fall, and the supply of money it will rise.
B) excess supply of money, the interest rate will fall, and if there is initially an excess demand, it will rise.
C) excess supply of money, the interest rate will rise, and if there is initially an excess demand, it will fall.
D) excess supply of money, the interest rate will fall, and if there is also an excess demand, it will fall rapidly.
E) excess supply of money, the interest rate will rise, and if there is also an excess demand, it will rise rapidly.

jamesnevil303 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The failure of these propositions in the real world is related to trade barriers and departures from free competition, factors that can result in pricing to market by exporters. In addition, different definitions of price levels in different countries bedevil attempts to test PPP using the price indexes governments publish. For some products, including many services, international transport costs are so steep that these products become non-tradable (see page 425).

Answer to Question 2

B