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Purchasing Power Parity and Interest Rate Parity are defined clearly.

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Discuss purchasing power parity and interest rate parity as they apply to foreign exchange rate.

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Foreign exchange rates

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Economics question book the economy today schiller 10/e

Section 1: Graphical Analysis:
For each question (numbers 1 through 14), choose an answer from the choices (A through E) below:
A) The curve shifts to the right (outward)
B) The curve shifts to the left (inward)
C) Movement along the curve
D) The market outcome is not on the curve
E) No impact

For Questions 1 through 5, characterize how the impact of each of the following events would be represented on the U.S. Production Possibility Frontier curve (Select answer from A through E above):
1) Improved information flows
2) High unemployment
3) An increase in workforce size
4) The aging of public infrastructure
5) The movement of U.S. corporate capital overseas

For Questions 6 to 11, characterize how the impact of each of the following events would be represented on the current U.S. demand curve for coffee (Select answer from A thru E above):
6) An increase in the price of tea
7) An increase in the price of coffee
8) The public expects an increase in the price of coffee.
9) Growing public concern over the health effects of caffeine
10) A decrease in price of sugar
11) Hurricane landfall in a major coffee production area

For Questions 12 through 14, characterize how the impact of each of the following events would be represented on the supply curve for coffee in the U.S. market (Select answer from A through E above):
12) Growing public concern over the health effects of caffeine
13) Hurricane landfall in a major coffee production area
14) The introduction of a new chemical that controls an insect pest affecting coffee

Section 2: Definitions & Short Answers:

1) Explain why we face economic choices.
2) What does the PPF curve represent? What does outward movement of the PPF curve represent? Is it possible to have a level of consumption that exceeds the level of production represented by the PPF? If so, how?
3) Define marginal cost.
4) Define opportunity cost.
5) Explain what inflation is and how it is calculated?
6) Define ceteris paribus and explain its significance to economic analysis.
7) Describe and discuss the circular flow of money leave government and foreign trade out of the picture).
8) Define Gross Domestic Product (GDP) and discuss what is and is not included with the calculation of GDP.
9) Discuss the difference between nominal and real GDP? If a news report mentions GDP without any adjective, it is most probably referring to which: nominal or real?
10) Discuss the major categories of economic resources (inputs to production).
11) Explain why the U.S. Congress choose 3% inflation rather than zero inflation as the benchmark for price stability.
12) List and discuss some of the reasons that the U.S. government has committed itself to avoiding significant inflationary effects (in other words, discuss some of the negative effects of inflation).

Section 3: short Essays

1) Discuss frictional, structural and cyclical unemployment. Which type do we expect that we may be able to eliminate via effective government policy.

2) Explain the "process" by which the forces of supply and demand interact to "clear the market".

3) Define the law of demand. List and discuss the determinants (shift factors) for demand.

4) What are the three principle circumstances in which government intervention in a market would be justified in order to enhance market efficiency? Define and provide an example of each major category.

5) Every economy must answer three questions that are basic to production. List and discuss these questions/issues. Be sure to relate the questions to the issues of efficiency and equity.

6) List the four (4) quantities that comprise the "expenditures" approach to measuring GDP. Discuss the makeup of each of these components.

Section 4

1) Describe the relationship between "excessive" demand and inflation.

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