ECO 1102 Lecture Notes - Lecture 15: Purchasing Power Parity, Real Interest Rate, Starbucks

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ECO 1102 Full Course Notes
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ECO 1102 Full Course Notes
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It is a key determinant of how much a country exports and imports. Real x-rate = (nominal x-rate x domestic price) /foreign price. When studying an economy as a whole, macroeconomists focus on overall prices rather than the prices of individual items. Active learning compute the real exchange rate e = 10 pesos per $ price of tall starbucks latte p = in cda, p* = 24 pesos in mexico a. Calculate the real exchange rate, measured as mexican lattes per canadian latte e=10 pesos per $ price of a tall starbucks latte p= in cda, p =24 pesos in mexico a. = 1. 25 mexican lattes per cda latte (= e x p / pe) A first theory of exchange-rate determination: purchasing power parity purchasing- power parity (ppp): a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries.

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