ECON 214 Quiz: Economics 114 notes.docx
Document Summary
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 the theory of ppp is based on a principle called the law of one price a good must sell for the same price in all locations according to ppp a currency must have the same purchasing power in all countries: ppp tells us that the nominal exchange rate between the currencies of two countries depends on the price levels in those countries (japan/canada example, for the purchasing power to be the same in two countries it must be, then, The sources of supply and demand: market for loanable funds, supply of loanable funds from national savings (s, demand for loanable funds from domestic investment (i, market for foreign currency exchange, supply of dollars from nco (s i, demand for dollars from net exports (nx)
