EBK THE ECONOMICS OF MONEY, BANKING AND
5th Edition
ISBN: 9780134734545
Author: Mishkin
Publisher: YUZU
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Question
Chapter 20, Problem 2WE
To determine
The Local prices, exchange rate and PPP across the countries.
Concept Introduction:
Expert Solution & Answer
Explanation of Solution
Apart from the International Comparisons Program (ICP) established in 1968, the annual test of PPP tracks the annual
The PPP would be the ratio of local prices in a country to the dollar price of the basket. This is also the expected rate of exchange. Is the actual rate of exchange is higher than this, the dollar is said to be overvalued and if the rate of exchange is lower dollar is said to be undervalued.
Part (a)
The graph below establishes a relationship between the local price, the expected rate of exchange or the PPP and the actual rate of exchange between the dollar and the local currency on the data sourced from the Big Mac PPP index.
| Country | Local Price | Actual Dollar Exchange Rate | Expected Exchange Rate or the PPP |
| Argentina | 75 | 18.9 | 14.2 |
| Australia | 5.9 | 1.3 | 1.1 |
| Brazil | 16.5 | 3.2 | 3.1 |
| Britain | 3.19 | 0.7 | 0.6 |
| Canada | 6.55 | 1.2 | 1.2 |
| Chile | 2600 | 605.9 | 492.4 |
| China | 20.4 | 6.4 | 3.9 |
| Colombia | 10900 | 2844.1 | 2064.4 |
| Costa Rica | 2290 | 568.5 | 433.7 |
| Czech Republic | 79 | 20.7 | 15.0 |
| Denmark | 30 | 6.1 | 5.7 |
| Egypt | 34.21 | 17.7 | 6.5 |
| Euro area | 3.95 | 0.8 | 0.7 |
| Hong Kong | 20.5 | 7.8 | 3.9 |
| Hungary | 864 | 252.1 | 163.6 |
| India | 180 | 63.9 | 34.1 |
| Indonesia | 35750 | 13359.0 | 6770.8 |
| Israel | 16.5 | 3.4 | 3.1 |
| Japan | 380 | 110.7 | 72.0 |
| Latvia | 2.7 | 0.8 | 0.5 |
| Lithuania | 2.8 | 0.8 | 0.5 |
| Malaysia | 9 | 4.0 | 1.7 |
| Mexico | 48 | 18.7 | 9.1 |
| New Zealand | 6.2 | 1.4 | 1.2 |
| Norway | 49 | 7.9 | 9.3 |
| Pakistan | 375 | 110.5 | 71.0 |
| Peru | 10.5 | 3.2 | 2.0 |
| Philippines | 134 | 50.7 | 25.4 |
| Poland | 10.1 | 3.4 | 1.9 |
| Russia | 130 | 56.7 | 24.6 |
| Saudi Arabia | 12 | 3.8 | 2.3 |
| Singapore | 5.8 | 1.3 | 1.1 |
| South Africa | 30 | 12.3 | 5.7 |
| South Korea | 4400 | 1069.3 | 833.3 |
| Sri Lanka | 580 | 153.8 | 109.8 |
| Sweden | 49.1 | 8.0 | 9.3 |
| Switzerland | 6.5 | 1.0 | 1.2 |
| Taiwan | 69 | 29.6 | 13.1 |
| Thailand | 119 | 32.0 | 22.5 |
| Turkey | 10.75 | 3.8 | 2.0 |
| UAE | 14 | 3.7 | 2.7 |
| Ukraine | 47 | 28.7 | 8.9 |
| United States | 5.28 | 1.0 | 1.0 |
| Uruguay | 140 | 28.6 | 26.5 |
| Vietnam | 65000 | 22711.5 | 12310.6 |
| Austria | 3.4 | 0.8 | 0.6 |
| Belgium | 4.1 | 0.8 | 0.8 |
| Estonia | 3.15 | 0.8 | 0.6 |
| Finland | 4.56 | 0.8 | 0.9 |
| France | 4.2 | 0.8 | 0.8 |
| Germany | 3.9 | 0.8 | 0.7 |
| Greece | 3.35 | 0.8 | 0.6 |
| Ireland | 4.07 | 0.8 | 0.8 |
| Italy | 4.2 | 0.8 | 0.8 |
| Netherlands | 3.71 | 0.8 | 0.7 |
| Portugal | 3.2 | 0.8 | 0.6 |
| Spain | 3.95 | 0.8 | 0.7 |
| Country Local Price Actual Dollar Exchange Rate Expected Exchange Rate or the PPP Argentina 75 18.9 14.2 Australia 5.9 1.3 1.1 Brazil 16.5 3.2 3.1 Britain 3.19 0.7 0.6 Canada 6.55 1.2 1.2 Chile 2600 605.9 492.4 China 20.4 6.4 3.9 Colombia 10900 2844.1 2064.4 Costa Rica 2290 568.5 433.7 Czech Republic 79 20.7 15.0 Denmark 30 6.1 5.7 Egypt 34.21 17.7 6.5 Euro area 3.95 0.8 0.7 Hong Kong 20.5 7.8 3.9 Hungary 864 252.1 163.6 India 180 63.9 34.1 Indonesia 35750 13359.0 6770.8 Israel 16.5 3.4 3.1 Japan 380 110.7 72.0 Latvia 2.7 0.8 0.5 Lithuania 2.8 0.8 0.5 Malaysia 9 4.0 1.7 Mexico 48 18.7 9.1 New Zealand 6.2 1.4 1.2 Norway 49 7.9 9.3 Pakistan 375 110.5 71.0 Peru 10.5 3.2 2.0 Philippines 134 50.7 25.4 Poland 10.1 3.4 1.9 Russia 130 56.7 24.6 Saudi Arabia 12 3.8 2.3 Singapore 5.8 1.3 1.1 South Africa 30 12.3 5.7 South Korea 4400 1069.3 833.3 Sri Lanka 580 153.8 109.8 Sweden 49.1 8.0 9.3 Switzerland 6.5 1.0 1.2 Taiwan 69 29.6 13.1 Thailand 119 32.0 22.5 Turkey 10.75 3.8 2.0 UAE 14 3.7 2.7 Ukraine 47 28.7 8.9 United States 5.28 1.0 1.0 Uruguay 140 28.6 26.5 Vietnam 65000 22711.5 12310.6 Austria 3.4 0.8 0.6 Belgium 4.1 0.8 0.8 Estonia 3.15 0.8 0.6 Finland 4.56 0.8 0.9 France 4.2 0.8 0.8 Germany 3.9 0.8 0.7 Greece 3.35 0.8 0.6 Ireland 4.07 0.8 0.8 Italy 4.2 0.8 0.8 Netherlands 3.71 0.8 0.7 Portugal 3.2 0.8 0.6 Spain 3.95 0.8 0.7 |
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Tasks
Exercise 1
Assess the following functions:
1. f(x)= x2+6x+2
2.f '(x)=10x-2x2+5
a. Find the stationary points. (5 marks)
b. Determine whether the stationary point is a maximum or minimum. (5 marks)
c. Draw the corresponding curves (5 marks)
Problem 2:
The sales data over the last 10 years for the Acme Hardware Store are as follows:
2003
$230,000
2008
$526,000
2004
276,000
2009
605,000
2005
328,000
2010
690,000
2006
388,000
2011
779,000
2007
453,000
2012
873,000
1. Calculate the compound growth rate for the period of 2003 to 2012.
2. Based on your answer to part a, forecast sales for both 2013 and 2014.
3. Now calculate the compound growth rate for the period of 2007 to 2012.
1. Based on your answer to part e, forecast sales for both 2013 and 2014.
5. What is the major reason for the differences in your answers to parts b and d? If you were to
make your own projections, what would you forecast? (Drawing a graph is very helpful.)
Exercise 4A firm has the following average cost: AC = 200 + 2Q – 36
Q
Find the stationary point and determine if it is a maximum or a minimum.b. Find the marginal cost function.
Chapter 20 Solutions
EBK THE ECONOMICS OF MONEY, BANKING AND
Ch. 20 - Prob. 1LOCh. 20 - Prob. 2LOCh. 20 - Prob. 3LOCh. 20 - Prob. 4LOCh. 20 - Prob. 1QCh. 20 - Prob. 2QCh. 20 - Prob. 3QCh. 20 - Prob. 4QCh. 20 - Prob. 5QCh. 20 - Prob. 6Q
Ch. 20 - Prob. 7QCh. 20 - Prob. 8QCh. 20 - Prob. 9QCh. 20 - Prob. 10QCh. 20 - Prob. 11QCh. 20 - Prob. 12QCh. 20 - Prob. 13QCh. 20 - Prob. 14QCh. 20 - Prob. 15QCh. 20 - Prob. 16QCh. 20 - Prob. 17APCh. 20 - Prob. 18APCh. 20 - Prob. 19APCh. 20 - Prob. 20APCh. 20 - Prob. 21APCh. 20 - Prob. 22APCh. 20 - Prob. 23APCh. 20 - Prob. 24APCh. 20 - Prob. 25APCh. 20 - Prob. 1DAPCh. 20 - Prob. 2DAPCh. 20 - Prob. 1WECh. 20 - Prob. 2WE
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