Author Question: In order for the condition E/HK = PUS/PHK to hold, what assumptions does the principle of purchasing ... (Read 127 times)

Lobcity · **on:** Jun 30, 2018

In order for the condition E/HK = PUS/PHK to hold, what assumptions does the principle of purchasing power parity make?

A) Only that there are no transportation costs and restrictions on trade.
B) Only that the markets are perfectly competitive, i.e., P = MC.
C) The factors of production are identical between countries.
D) No arbitrage exists.
E) HK and the US are perfectly competitive and there are no transportation costs or restrictions on trade.

Question 2

Which of the following would cause the LM curve to shift to the right?

A) increased money supply
B) a larger U.S. capital account deficit
C) a depreciation of the dollar
D) lower level of U.S. income