Economics (6th Edition)
Economics (6th Edition)
6th Edition
ISBN: 9780134105956
Author: Hubbard
Publisher: PEARSON
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Chapter 30.A, Problem 11PA
To determine

The given statement is correct or incorrect.

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After leaving the gold standard system, the exchange rate in terms of gold changed from 100 to 60. Mt textbook expresses it as the reduction in exchange rate. However, I feel that the currency becomes strong given that if I give 60 currencies of a country, I can gain 1 gold instead of 100 currencies. Could you explain what the change from 100 to 6o means?
The NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued. In July 2019, the price of Mercedes Benz was $55 thousand in New York, 390 thousand yuan in Beijing, and 66.5 thousand Swiss francs in Geneva. The exchange rates were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S. dollar. a. Does the purchasing power parity hold? Was yuan undervalued or overvalued relative USdollar? Explain your answer and show the calculation.  b. Do you think the price of a representativeness car, Mercedes Benz in different countriesprovides a valid test of purchasing power parity?
What are the basic factors that determine the value of a currency? Briefly describe howvarious economic factors can affect the equilibrium exchange rate of the Pakistani rupee’svalue with respect to that of the dollar?
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