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Economics 114 HW1

Economics 114 HW1 - Economics 114 Development Economics...

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Economics 114 Development Economics Jinmao Xu Homework 1 4715033 Summer 2011 1. Country Production of TV sets Price of TV sets in local currency Production of haircuts Price of haircuts in local currency GDP in local currency GDP exchange rate GDP PPP A 56 \$14 140 \$5 \$ 1484 \$ 1484 \$ 1484 B 21 28 15 2 \$ 618 \$ 309 \$ 391 (a) Exchange rate GDP is \$1 : \$2; Exchange rate ratio of GDP is 1 : 4.8; (b) PPP GDP is 1 : 1.58; PPP ratio of GDP is 1 : 3.79; (c) -0.21; Under-valued. B's currency compare to A's currency is under-valued by 21%, meaning when you convert 1 USD to their currency, you will be getting too much. (d) 0.26; Over-valued. A's currency compare to B's currency is over-valued by 26%, meaning when you convert 1of their currency to USD, you will be getting too little. 2. Country Production of TV sets Price of TV sets in local currency Production of haircuts Price of haircuts in local currency GDP in local currency GDP exchange rate GDP PPP A 35 \$10 80 \$5 \$750 \$750 \$750 B 18 25 40 6 \$690 \$276 \$334 (a) Exchange rate GDP is \$1 : \$2.5; Exchange rate ratio of GDP is 1 : 2.72; (b) PPP GDP is 1 : 2.067; PPP ratio of GDP is 2.25; (c) -0.17; Under-valued. B's currency compare to A's currency is under-valued by 17%, meaning when you convert 1 USD to their currency, you will be getting too much.

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