Purchasing-power parity describes the forces that determine: a. Prices in the sh

Question

Purchasing-power parity describes the forces that determine:

a. Prices in the short-run.

b. Prices in the long-run.

c. Exchange rates in the short-run.

d. Exchange rates in the long-run.

Consider the nation of Pentos, where the currency is the stag. Pentos had a trade deficit of 20 billion stag, but then Pentos’s exports rose by 7 billion stags and its imports fell by 10 billion stags. Pentos’s total net exports now equals:

a. 37 billion stag.

b. -3 billion stag.

c. 3 billion stag.

d. -37 billion stag.

Please Explain how you got your answer!

Explanation / Answer

The Purchasing-power parity describes the forces that determine exchange rate in the long run.

so d is correct.

trade deficit = 20

trade deficit = IM - X

20 = IM -10 - (X +7)

20 = IM - 10 - X - 7

20 = IM -X - 17

20 + 17 = IM -X

37 = IM - X

- 37 = (X- IM)

so X- IM = -37

NX = - 37

thus d is correct

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.