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? + v ... Paragraph BIU A EN III

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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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?
+ v
...
Paragraph
BIU A
EN
III
Transcribed Image Text: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? + v ... Paragraph BIU A EN III
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