Critically Evaluate The Use Of The Big Mac, By The Economist, As A Measure Of Purchasing Power Parity. Could You Suggest A Similar Alternative That Might Be A Good Measure Of Ppp

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Issue:

Business

 

Written by:

Beatrice J

 

Date added:

October 29, 2014

 

Level:

University

 

Grade:

A

 

No of pages / words:

7 / 1799

 

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6809 times

 

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Therefore when a country's domestic price level is increasing, that is a country experiences inflation, if PPP holds then it follows that country's exchange rate must depreciate in order to return to equilibrium. The basis for PPP is the "law of one price". In the absence of transportation and other transaction costs, competitive markets will equalise the price of an identical good in two countries when the prices are expressed in the same currency...
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In the absence of transportation and other transaction costs, competitive markets will equalise the price of an identical good in two countries when the prices are expressed in the same currency. Otherwise there is an arbitrage opportunity (arbitrage being defined as “the simultaneous purchase and sale of substantially identical assets in order to profit from a price difference between the two assets” Wall Street Words: An Essential A to Z Guide for Today's Investor by David L...
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