Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 29, Problem 26CTQ
Do you think that a country experiencing hyperinflation is more or less likely to have an exchange rate equal to its
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In this question, you will test relative purchasing parity (PPP) using the data. Use yearly
data from FRED website
from 1971 to 2020: (i) The Canadian Dollars to U.S. Dollar Spot
Exchange Rate (ER) (ii) Consumer price index for Canada (CAN_CPI), and (iii) Consumer price
index for the US (US_CPI). Inflation is measured by the consumer price index (CPI). The relative
PPP equation is:
AE CAN$/US$
ECAN$/US$
=
π CAN - πUS
Submit the Excel sheet that you worked on.
1. First, compute the percentage change in the exchange rate (left-hand side of the equation).
Caculate the variable for each year from 1972 to 2020 in Column E (named Change_ER) of
the Excel sheet. For example, for 1972, compute
E3: (B3-B2)/B2).
ER1972 ER1971
ER 1971
(in Excel, the formula in cell
not use ai please
8. The current price of 3M stock is $87 per share. The previous dividend paid was $5.96, and
the next dividend is $6.25, assuming a growth rate of 4.86% per year.
What is the forward (next 12 months) dividend yield?
Show at least two decimal places, as in x.xx%
%
Chapter 29 Solutions
Principles of Economics 2e
Ch. 29 - How will a stronger euro affect the following...Ch. 29 - Suppose that political unrest in Egypt leads...Ch. 29 - Suppose U.S. interest rates decline compared to...Ch. 29 - Suppose Argentina gets inflation under control and...Ch. 29 - This chapter has explained that one of the most...Ch. 29 - A booming economy can attract financial capital...Ch. 29 - How would a contractionary monetary policy affect...Ch. 29 - A central bank can allow its currency to fall...Ch. 29 - Is a country for which imports and exports...Ch. 29 - What is the foreign exchange market?
Ch. 29 - Describe some buyers and some sellers in the...Ch. 29 - What is the difference between foreign direct...Ch. 29 - What does it mean to hedge a financial...Ch. 29 - What does it mean to say that a currency...Ch. 29 - Does an expectation of a stronger exchange rate in...Ch. 29 - Does a higher rate of return in a nations economy,...Ch. 29 - Does a higher inflation rate in an economy, other...Ch. 29 - What is the purchasing power parity exchange rate?Ch. 29 - What are some of the reasons a central bank is...Ch. 29 - How can an unexpected fall in exchange rates...Ch. 29 - What is the difference between a floating exchange...Ch. 29 - List some advantages and disadvantages of the...Ch. 29 - Why would a nation dollarize—that is, adopt...Ch. 29 - Can you think of any major disadvantages to...Ch. 29 - If a countrys currency is expected to appreciate...Ch. 29 - Do you think that a country experiencing...Ch. 29 - Suppose a country has an overall balance of trade...Ch. 29 - We learned that changes in exchange rates and the...Ch. 29 - If a developing country needs foreign capital...Ch. 29 - Many developing countries, like Mexico, have...Ch. 29 - What would make a country decide to change from a...Ch. 29 - A British pound cost 2.00 in U.S. dollars in 2008,...
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