problem 6 - ECON 162B-A0, A1 Fall 2010 PROBLEM SET NUMBER...

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ECON 162B-A0, A1 Kenny Christianson Fall 2010 due: November 5 PROBLEM SET NUMBER SIX 1. Suppose that a pound of beef sells for $5 in the United States, and for € 4 in France. The exchange rate is 1 = $2, and it costs $1 to ship a pound of beef between the United States and France. a. Can you get rich in this market? Why or why not? Explain. b. In the long run, what would you expect to happen to the price of beef in the U.S. and France? What would be the price differential? c. Assume that prices are fixed. According to Purchasing Power Parity Theory, how will exchange rates adjust? 2. Suppose that the economy of Workerville consists of the following people: Al works full-time as a carpenter. Betty works part-time as a librarian. Charlie is a drug addict who is currently in prison. Donna works full-time as an electrical engineer. Eddie is a full-time college student without a part-time job. Fran is actively seeking work as a receptionist.
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This note was uploaded on 11/19/2010 for the course ECON 162 taught by Professor Christianson during the Spring '05 term at Binghamton.

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problem 6 - ECON 162B-A0, A1 Fall 2010 PROBLEM SET NUMBER...

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