https://padlet.com/jajumbo17/d96kr7aq6gn2wg9g en-us 2022-10-18 15:31:52 UTC 2022-10-20 15:19:48 UTC hello@padlet.com maricrisarmon https://padlet.com/jajumbo17/d96kr7aq6gn2wg9g/wish/2345462543 Consider the general price level.
The exchange rate between two currencies must be equal to the ratio of the price levels in the two countries.
It establishes that price levels, in all countries, must be equal when expressed in terms of the same currency.
The main weakness is that, for it to make sense, the prices in the two countries must be measured with the same basket. This is possible only in countries with equivalent level of development, climatic conditions, preferences, cultural traditions and many other factors. In countries with different situations, the representative baskets are also different, so that absolute purchasing power parity is not applicable.
It is not fulfilled if the proportion between tradable and non-tradable goods in the reference baskets is different. Productivity in the tradable goods sector may grow at a different rate than productivity in non-tradable goods. The greatest difference in this line between the countries occurs in the sector of tradable products. In services, productivity in developed countries is slightly higher than in developing countries.]]> 2022-10-18 16:22:01 UTC https://padlet.com/jajumbo17/d96kr7aq6gn2wg9g/wish/2345462543 https://padlet.com/jajumbo17/d96kr7aq6gn2wg9g/wish/2349194599 The law of one price, which relates the exchange rate to the prices of individual products.
In reference to competitive markets, in the absence of transportation costs and trade barriers, identical products should have the same price in different countries in terms of a given currency.
If this postulate were true, it would be very easy to determine the exchange rate between two currencies. It would be enough to divide the price of a product in one currency by its price in another
currency.]]> 2022-10-20 14:43:16 UTC https://padlet.com/jajumbo17/d96kr7aq6gn2wg9g/wish/2349194599 jajumbo17 https://padlet.com/jajumbo17/d96kr7aq6gn2wg9g/wish/2349252491 The relative purchasing power parity is an extension of the absolute PPA, and both can be used together. The same good in different countries should be the same over time, the relative PPA suggests that there is a correlation between prices inflation and currency exchange rates.
The theory recommends that inflation will reduce the real purchasing power of a currency, so, to adjust the PPA, inflation must be taken into account.]]> 2022-10-20 15:15:38 UTC https://padlet.com/jajumbo17/d96kr7aq6gn2wg9g/wish/2349252491