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According to the law of one price, what should the exchange rate be if a car costs birr 180,000 in Ethiopia and $20,000 in the US?
According to the law of one price, what should the exchange rate be if a car costs birr 180,000 in Ethiopia and $20,000 in the US?
- Birr 7/USD
- Birr 8/USD
- Birr 9/USD (correct)
- Birr 10/USD
What is the concept behind the law of one price?
What is the concept behind the law of one price?
- Price discrimination
- Monopolistic competition
- Oligopoly pricing strategy
- Perfect goods arbitrage (correct)
If the exchange rate is birr 9.20/USD, what will US citizens do according to the law of one price?
If the exchange rate is birr 9.20/USD, what will US citizens do according to the law of one price?
- Buy a car in Ethiopia (correct)
- Not engage in arbitrage
- Buy a car in the US
- Sell birr and buy dollars
What happens to arbitrage profit opportunities according to the law of one price?
What happens to arbitrage profit opportunities according to the law of one price?
If the exchange rate is birr 8.50/USD, how much would the Ethiopian resident save by purchasing a car in the US?
If the exchange rate is birr 8.50/USD, how much would the Ethiopian resident save by purchasing a car in the US?
According to the absolute purchasing power parity (PPP) theory, if the price of a bundle of goods in Ethiopia is 20 birr and the same bundle costs $2 in the US, what should the exchange rate be?
According to the absolute purchasing power parity (PPP) theory, if the price of a bundle of goods in Ethiopia is 20 birr and the same bundle costs $2 in the US, what should the exchange rate be?
If the price of a bundle of goods in Ethiopia rises from 20 birr to 21 birr, while the price of the same bundle in the US remains at $2, what will happen to the exchange rate according to the absolute PPP theory?
If the price of a bundle of goods in Ethiopia rises from 20 birr to 21 birr, while the price of the same bundle in the US remains at $2, what will happen to the exchange rate according to the absolute PPP theory?
Which statement best describes the relative purchasing power parity (PPP) theory?
Which statement best describes the relative purchasing power parity (PPP) theory?
What is the main reason why the absolute version of PPP is unlikely to hold precisely, according to the text?
What is the main reason why the absolute version of PPP is unlikely to hold precisely, according to the text?
If the percentage change in the exchange rate between the birr and the USD is 5%, and the percentage change in the domestic price level in Ethiopia is 8%, what is the percentage change in the foreign price level (US) according to the relative PPP theory?
If the percentage change in the exchange rate between the birr and the USD is 5%, and the percentage change in the domestic price level in Ethiopia is 8%, what is the percentage change in the foreign price level (US) according to the relative PPP theory?
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