Answer Happy

3) Please answer the following:
3.1 An article of clothing costs 40 euro in Finland and 50 US$
in the US. The exchange rate of the US dollar to the euro is 1.25
US$ to one euro. Does the purchasing power theory hold in this
case? If so, why? If not, which economic forces could operate to
make the theory hold? (maximum 150 words)
3.2 Suppose that the prices of the article of clothing are as in
question 1), but now the exchange rate of the US dollar to the euro
is 1 US$ to one euro. Does the purchasing power theory hold in this
case? If so, why? If not, which economic forces could operate to
make the theory hold? (maximum 150 words)
3.3 Suppose that that the prices of the article of clothing are
as in question 1), but now the exchange rate of the US dollar to
the euro is 2 US$ to one euro. Suppose also that Finland imposes a
tariff on imports of clothing equal to 80% of their import value.
Does the purchasing power theory hold in this case? If so, why? If
not, which economic forces could operate to make the theory hold?
(maximum 150 words)
3.4 Describe the Balassa-Samuelson theory of why differences in
productivity between richer and poorer nations could lead to
deviations from the purchasing power theory (hint: you can answer
this question either verbally or mathematically, but in the latter
case you still need to explain your work) (maximum 200 words)