Explain the law of one price and the theory of purchasing power parity. Why doesn't purchasing power
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Explain the law of one price and the theory of purchasing power parity. Why doesn't purchasing power parity explain all exchange rate movements in the short run? What factors determine long-run exchange rates?
Assume that a fixed exchange rate is overvalued. Describe the situation of a speculative crisis against this currency.
What can the central bank do to defend the currency? Why might the alternative of devaluation be preferable?
Related Book For
Macroeconomics Principles, Applications, and Tools
ISBN: 978-0132555234
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
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