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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Do you think that a country experiencing hyperinflation is more or less likely to have an exchange rate equal to its purchasing power parity value when compared to a country with a low inflation rate?

To determine

Whether a country undergoing hyperinflation will have an exchange rate equal to its purchasing power parity when compared to a nation with a low inflation rate.

Explanation

Purchasing power parity determines exchange rate between two countries based on law of one price. For example, if a basket of goods is sold at 1.32 Canadian dollars in Canada and the same basket of goods is sold for 1 USD in US, then, according to PPP, 1US Dollar = 1.32 Canadian Dollars.

If a country experiences hyperinflation, there would be very frequent a...

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