QUESTION THREE (a) Consider a world that only comprises 2 goods (Good 1, Good 2) and 2 countries (UK and US). Assume tha

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QUESTION THREE (a) Consider a world that only comprises 2 goods (Good 1, Good 2) and 2 countries (UK and US). Assume tha

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Question Three A Consider A World That Only Comprises 2 Goods Good 1 Good 2 And 2 Countries Uk And Us Assume Tha 1
Question Three A Consider A World That Only Comprises 2 Goods Good 1 Good 2 And 2 Countries Uk And Us Assume Tha 1 (168.19 KiB) Viewed 16 times
QUESTION THREE (a) Consider a world that only comprises 2 goods (Good 1, Good 2) and 2 countries (UK and US). Assume that consumption weights of these goods for both countries be (0.25, 0.75). The price of the goods at time t are listed below: UK (GBP) US (USD) Good 1 20 25 Good 2 20 45 Note: GBP stands for British pound and USD stands for United States dollar. Let the spot exchange rate at time t be equal to 0.50 GBP/USD. Does absolute purchasing power parity (PPP) hold between the UK and the US? (5 Marks) (b) The price of the goods at time t+1 are listed below: UK (GBP) US (USD) 25 Good 1 22 Good 2 30 45 Using the information in (a), what spot exchange rate at time t+1 does relative purchasing power parity (PPP) imply?
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