3 questions on Monetary approach to exchange rate determination, national income accounting of open economy and closed economy and purchasing power parity

1. Describe the monetary approach to exchange rates between a pair of countries, including description of the market involved and the equilibrium conditions that must hold. Why does this approach fail to fully explain exchange rate movements? 2. Explain the difference between open economy and closed economy national income accounting. what is the difference between total savings under these two approaches? 3. What is the theory of purchasing power parity? This theory has been found to fail empirically. Give three reasons, with examples or illustrations, of why this is the case.

Working with the interest parity condition.

Would the interest parity condition change if all foreign exchange transactions were subject to a 1% transaction fee? If not, explain why. If yes, explain how you would drive the new interest parity condition. When would an investor prefer this type of transaction fee to one in which they paid a flat fee for each foreign exchange transaction?

assess questions and explain briefly for each if they are true or false and why?

1.An increase in Canada's exports will always lead to an improvement in our current account. (true/false) 2.If a Canadian purchases shares in Microsoft, this shows up in the Balance of Payments Financial Account as a debit item only. (true/false) 3.Purchasing power parity cannot hold if the law of one price does not hold. (true/false) 4.A real depreciation of the canadian dollar increases aggregate demand for canadian output.(true/false) 5.The difference between the short run and the long run is the prices are less flexible in the long run. (true/false) 6.There is little empirical support for the Purchasing power parity theory because the assumptions behind PPP do not usually hold.(t... click for more

Synopsis of Chapter-3 of the textbook - Economics:The Essentials

How the hypothesis of diminishing marginal utility is used to explain both the demand curve's negative slope and consumer surplus - a central concept in benefit-cost analysis; How small user charges can generate both large resource savings and small reductions in household utility; and How supply and demand analysis is used to determine the extent to which taxes can be passed on to others.

Some basic definitions of economics.

Opportunity Cost,Inflation,Unemployment,The balance of payments,Managed floating exchange rates,The real after-tax yield on investment,Economies of scale,Economies of scope,Profit maximization,Consumer Surplus, Nash Equilibrium, Perfect competition, Monopoly,Prisoners Dilemma