Consider the Balassa-Samuelson model presented during the lectures. Recall that in that model the parameter denotes the share of tradables relative to total GDP, while 1 equals then the share of nontradables relative to total GDP. Relying on the model presented during the lecture, assess the following statements:

(a) "Whenever the share of nontradables relative to total GDP is strictly larger than zero (that is, whenever 1 > 0), the absolute PPP will fail to hold true in reality." True or false, justify. (30%)

(b) "The absolute PPP fails to hold in reality because labour productivity in tradables does not to dier much across countries, especially at dierent stages of development." True or false, justify. (30%)

(c) Explain how the relative PPP diers from the absolute PPP. Can the relative PPP hold true while, at the same time, the absolute PPP fails to hold? Justi

QUESTION 13 1 po An increase in consumer spending caused by an increase in consumer confidence would cause a movement down and to the right along the aggregate demand curve. the aggregate demand curve to shift up and to the right. () a movement up and to the left along the aggregate demand curve. the aggregate demand curve to shift down and to the left. QUESTION 14 1 poQuestion 48 As the level of real GDP increases, the short-run aggregate supply curve: O shifts to the right. O shifts to the left. O becomes flatter. becomes steeper. becomes horizontal to the real GDP axis.Question 14 0/2pts Simultaneous recession and deflation can be explained by: an increase in aggregate supply. an increase in aggregate demand. O a decrease in aggregate demand. a decrease in aggregate supply. Question 15 0/2 pts Which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases? the interest rate effect the crowding-out effect the multiplier effect the wealth effectQuestion 47 A simultaneous increase in inflation and decrease in economic growth in a country can be associated with: O a decrease in aggregate demand with no change in aggregate supply. O an increase in aggregate demand and aggregate supply. )an increase in aggregate supply with no change in aggregate demand. a decrease in aggregate supply and aggregate demand. O a decrease in aggregate supply with no change in aggregate demand