In the international market for lumber, suppose Canadian lumber sells for $100 pertonne while Chinese lumber sells for 500 Chinese yuan per tonne.a) What is Purchasing Power Parity? If the current exchange rate is 4 yuan perCanadian dollar, does Purchasing Power Parity hold?b) If the current exchange rate is 4 yuan per dollar, what is the value of the realexchange rate between Canada and China? To earn a profit by exploiting thearbitrage opportunity, in which country should you buy lumber and in which countryshould you sell it?c) Suppose that money-supply growth is higher in China than it is in Canada. Whatdoes purchasing-power parity imply will happen to the real and to the nominalexchange rate?...II三ParagraphBIU AInsert StuffON 9

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Answered: c) Suppose that money-supply growth is…

c) Suppose that money-supply growth is higher in China than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

In the international market for lumber, suppose Canadian lumber sells for $100 per
tonne while Chinese lumber sells for 500 Chinese yuan per tonne.
a) What is Purchasing Power Parity? If the current exchange rate is 4 yuan per
Canadian dollar, does Purchasing Power Parity hold?
b) If the current exchange rate is 4 yuan per dollar, what is the value of the real
exchange rate between Canada and China? To earn a profit by exploiting the
arbitrage opportunity, in which country should you buy lumber and in which country
should you sell it?
c) Suppose that money-supply growth is higher in China than it is in Canada. What
does purchasing-power parity imply will happen to the real and to the nominal
exchange rate?
...
II
三
Paragraph
BIU A
Insert Stuff
ON 9

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