What are the key assumptions of the Lewis model that give rise to ...

[geodog55]

What are the key assumptions of the Lewis model that give rise to its conclusions? How would the theory's conclusions differ if these assumptions do not hold?
 
  What will be an ideal response?

Question 2

The CPI in Holland is 124, and the CPI in Israel is 186. If absolute purchasing power parity holds then the Euro/Shekel exchange rate should be
 
  A) 0.667.
  B) 1.5.
  C) 2.6.
  D) cannot be determined by the information given.

[ciecieme]

Answer to Question 1

There may be a variety of answers depending on what was emphasized in the lecture. The answer should include the existence of surplus labor in the rural sector that guarantees an infinitely elastic labor supply in industry until the surplus is exhausted and a propensity to save by industrialists equal to one. The lack of rural surplus labor (and infinite labor supply) would imply that when industrialists reinvest their profits there is no guarantee that their surplus increases. A low marginal propensity to save by industrialists puts a break on the labor transfer process.

Answer to Question 2

A

[geodog55]

Correct answers!

[ciecieme]

Great! Please up vote