Problem Set #8 - Purchasing Power Parity

Due by the end of class on March 30, 1998.

1. State the law of one price. How does arbitrage ensure that the law prevails?

2. What is purchasing power parity? Why does PPP not appear to hold in the real world?

3. Discuss the Bretton Woods exchange rate system.

David A. Latzko
318 COB
Department of Business and Economics
Wilkes University
Wilkes-Barre, PA 18766
phone: (717) 408-4718
fax: (717) 408-4917
dlatzko@wilkes.edu
wilkes1.wilkes.edu/~dlatzko