• Back to Basics, PPP Versus the Market: Which Weight Matters?” By Tim Callen.
• What are PPP adjustments and why do we need them?
Q1- Explain the difference between the approaches: PPP and market based exchange rates, when comparing GDP and GDP growth rates between countries.
Q2- IPAD cost $700 in the US and 3,500 NIS in Israel and assume that today’s market exchange rate equals NIS/$=3.7, what does it mean? (explain briefly)
Select one:
a.
That the shekel is overvaluing the amount of economic activity going on in Israel (or the standard of living).
b.
That the shekel is undervaluing the amount of economic activity going on in Israel (or the standard of living).
c.
That it is better to buy the IPhone in Israel.
d.
None of the above.
Briefly Explain your answer:
Q3- In your opinion when it will be appropriate to use each approach (PPP and market based exchange rates)?