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1、International Economics, 8e (Krugman) 23Chapter 15 Price Levels and the Exchange Rate in the Long Run15.1 The Law of One Price1) Which of the following statements is the most accurate? The law of one price states: A) in competitive markets free of transportation costs and official barrier to trade,
2、identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. B) in competitive markets free of transportation costs and official barrier to trade, identical goods sold in the same country must sell for the same price when the
3、ir prices are expressed in terms of the same currency. C) in competitive markets free of transportation costs and official barrier to trade, identical goods sold in different countries must sell for the same price. D) identical goods sold in different countries must sell for the same price when thei
4、r prices are expressed in terms of the same currency. E) None of the above. Answer: A Question Status: Previous Edition2) Under Purchasing Power Parity, A) E$/E = PUS/PE. B) E$/E = PE/PES. C) E$/E = PUS + PE. D) E$/E = PUS - PE. E) None of the above. Answer: A Question Status: Previous Edition3) Exp
5、lain the Law of One Price. Give an example. Answer: The law of one price states that in competitive markets free of transportation costs and trade barriers, identical goods sold in different countries must sell for the same price when expressed in terms of the same currency.= (E$/) () for good i.E$/
6、 = /If, for example, the price of the same sweater was cheaper in London than in New York, U.S. importers and British exporters would have an incentive to buy sweaters in London and ship them to New York, pushing the London price up and the New York price down, until both were equal. Question Status
7、: Previous Edition 4) Fill in the following table, assuming the law of one price prevails. Answer: Question Status: Previous Edition15.2 Purchasing Power Parity1) Under Purchasing Power Parity, A) E$/E = PiUS/PiE. B) E$/E = PiE/PiUS. C) E$/E = PUS/PE. D) E$/E = PE/PES. E) None of the above. Answer:
8、C Question Status: Previous Edition2) Which of the following statements is the most accurate? A) The law of one price applies only to the general price level. B) The law of one price applies to the general price level while PPP applies to individual commodities. C) The law of one price applies to in
9、dividual commodities while PPP applies to both the general price level and to individual commodities. D) PPP applies only to individual commodities. E) The law of one price applies to individual commodities while PPP applies to the general price level. Answer: E Question Status: Previous Edition 3)
10、Which of the following statements is the most accurate? A) If PPP holds true, then the law of one price holds true for every commodity as long as the reference baskets used to reckon different countries price levels are the same. B) If the law of one price holds true for every commodity, PPP must ho
11、ld automatically. C) If the law of one price holds true for every commodity, PPP must automatically hold as long as the reference baskets used to reckon different countries price levels are the same. D) If the law of one price does not hold true for every commodity, PPP cannot be true as long as the
12、 reference baskets used to reckon different countries price levels are the same. E) None of the above. Answer: C Question Status: Previous Edition4) Which of the following statements is the most accurate? A) Absolute PPP does not imply relative PPP. B) Relative PPP implies absolute PPP. C) There is
13、no causality relation between the two. D) Absolute PPP implies relative PPP. E) None of the above. Answer: D Question Status: Previous Edition5) Which of the following statements is the most accurate? A) Relative PPP may be valid even when absolute PPP is not, provided the factors causing deviations
14、 from absolute PPP are more or less stable over different commodities space. B) Absolute PPP may be valid even when relative PPP is not, provided the factors causing deviations from relative PPP are more or less stable over time. C) Relative PPP may be valid even when absolute PPP is not, provided t
15、he factors causing deviations from absolute PPP are more or less stable over time. D) Relative PPP is not valid when absolute PPP is not. E) None of the above. Answer: C Question Status: Previous Edition6) Explain Purchasing Power Parity. Answer: PPP states that the exchange rate between two countries currencies
