Question

Question 2 (10 Marks): Country Currency Currency per Canadian $ Canadian Price Index Country Price Index Mexico China England Thailand France Peso Yuan Pound Baht Euro 9.00 130.00 10.00 5.00 4.50 100 100 100 900 26,000 1,000 800 35 100 100 a. For which country(ies) does Purchasing Power Parity hold? Explain your answer. b.Which currency(ies) in Table One is/are less valuable than predicted by the doctrine of Purchasing Power Parity? Explain your answer. c. Which currency(ies) in Table One is/are more valuable than predicted by the doctrine of Purchasing Power Parity? Explain your answer. d. In real terms, Canadian goods are more expensive than goods in which country(ies)? Explain your answer. e. In real terms, Canadian goods are less expensive than goods in which country(ies)? Explain your answer. 12

Answer 1

Given that: The table in the question got mis arranged while posting the question, so Iam arywering based on what I think is correct, table , posted below ay poor my understanding. 130 100 100 100 1000 Currency Peor Canadian price country price country Currency canadian & Index Index Mexico peso 900 china Yuan 26000 England pound Thailand Baht 100 800 France EUYO. 100 35 How the main thing - To Note here is that app = (consumer Price index in canada /consumer price index in the other country) * currency per anadian dollar. ④ The ppp will hold when the Canadian Price index * currency peor canadian dolloor will be equal to the country Price index. It's happens only in case of "Mexico and England ® Baht and yuan" are less valuable than Predicted by ppp Since theion currency per capi canadian Price 'index is highear theior own index,

© Euro is more valuable because its currency peor cad ead price index is lower than its own currency indes. © In real teainny canadian goods will be more Sepensive than "chira and Thailand", Same in England & Mexico" and less capensive than in "France". The reasoning is same as in above a ports. 503