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1.Which of the following statements is the most accurate? The law of one price states:
A) in competitive markets free of transportation costs and official barrier to trade, identical goods
sold in different countries must sell for the same price when their prices are expressed in terms of
the same currency.
B) in competitive markets free of transportation costs and official barrier to trade, identical goods
sold in the same country must sell for the same price when their prices are expressed in terms of
the same currency.
C) in competitive markets free of transportation costs and official barrier to trade, identical goods
sold in different countries must sell for the same price.
D) identical goods sold in different countries must sell for the same price when their prices are
expressed in terms of the same currency.
4.In order for the condition E$/HK$ = Pus/PHK to hold, what assumptions does the principle of
purchasing power parity make?
A) No transportation costs and restrictions on trade; commodity baskets that are a reliable
indication of price level.
B) Markets are perfectly competitive, i.e., P = MC.
C) The factors of production are identical between countries.
D) No arbitrage exists.
E) A and B.
7.In February 2007, the world's cheapest Big Macs were sold in
A) the Philippines.
B) Russia.
C) Ukraine.
D) China.
E) the Czech Republic.
9.The purchasing power of any given country will increase in countries where the prices of
non-tradable goods rise.
B) The purchasing power of any given country will fall in countries where the prices of
non-tradable goods fall.
C) The purchasing power of any given country will fall in countries where the prices of
non-tradable goods rise.
D) The purchasing power of any given country will remain constant in countries where the prices
of non-tradable goods rise.
AA C E A
AD D CE