Purchasing Power Parity

Purchasing Power Parity Ever wondered why the value of 1 American dollar is different from 1 Euro? The economic theory of  purchasing power parity (PPP) will help you understand why different currencies have different purchasing powers and how exchange rates are set.   What Purchasing Power Parity Is The Dictionary of Economics  defines purchasing power parity  (PPP) as a theory which states that the exchange rate between one currency and another is in equilibrium when their domestic purchasing powers at that rate of exchange are equivalent. Example of 1 for 1 Exchange Rate How does inflation in 2 countries affect the exchange rates between the 2  countries? Using this definition of purchasing power parity, we can show the link between inflation and exchange rates. To illustrate the link, lets imagine 2 fictional countries: Mikeland and Coffeeville. Suppose that on January 1st, 2004, the prices for every good in each country is identical. Thus, a football that costs 20 Mikeland Dollars in Mikeland costs 20 Coffeeville Pesos in Coffeeville. If purchasing  power parity holds, then 1 Mikeland Dollar must be worth 1 Coffeeville Peso. Otherwise, there is the chance of making a risk-free profit by buying footballs in one market and selling in the other. So here PPP requires a 1 for 1 exchange rate. Example of Different Exchange Rates Now lets suppose Coffeyville has a 50% inflation rate whereas Mikeland has no inflation whatsoever. If the inflation in Coffeeville impacts every good equally, then the price of footballs in Coffeeville will be 30 Coffeeville Pesos on January 1, 2005. Since there is zero inflation in Mikeland, the price of footballs will still be 20 Mikeland Dollars on Jan 1, 2005. If purchasing power parity holds and one cannot make money from buying footballs in one country and selling them in the other, then 30 Coffeeville Pesos must now be worth 20 Mikeland Dollars. If 30 Pesos 20 Dollars, then 1.5 Pesos must equal 1 Dollar. Thus the Peso-to-Dollar exchange rate is 1.5, meaning that it costs 1.5 Coffeeville Pesos to purchase 1 Mikeland Dollar on foreign exchange markets. Rates of Inflation and Currency Value If 2 countries have different rates of inflation, then the relative prices of goods in the 2 countries, such as footballs, will change. The relative price of goods is linked to the exchange rate through the theory of purchasing  power parity. As illustrated,  PPP tells us that if a country has a relatively high inflation rate, then the value of its currency should decline.

The Best Topics for Essay Writing of 2013

The Best Topics for Essay Writing of 2013 The Best Topics for Essay Writing of 2013 Everybody knows how difficult it is to take a first step, no matter what kind of task you have to do. The same is true about writing an essay. Trying to write a draft even without knowing how and what you have to write can help you practice writing a little bit, but on the other hand it is a complete waste of time in most cases. So, every kind of task needs careful planning in order to know the sequence of all actions you have to take while writing your essay. Well, the first and perhaps the most important step you have to take is choosing a topic of your essay. You can pick one randomly, without even thinking whether it meets your essay requirements or whether you are interested in it and can find enough information. Choosing an inappropriate topic may cause further problems, and it would be just too late to change another one. So, consider all the possible problems you may encounter while writing an essay on a particular topic. By the way, it is better to choose an interesting topic, even if it is complicated, then to knock yourself out writing an easy, but rather boring essay which will not appeal neither to you, nor your teachers. Keep in mind that a bad beginning makes a bad ending. Lets consider several ideas of choosing a compelling topic. First of all, you can choose a recent event, something that happened in 2013, and analyze it in your essay. Do you remember the birth of the British royal child, Prince George of Cambridge? Why not write an essay analyzing the importance of British monarchy or the possibility to change the form of government and the consequences of it. Maybe it is worth mentioning Edward Snowden? You can express your opinion on whether he did the right thing by disclosing confidential information of US government. You can also dwell upon various surveillance programs here. Are you interested in physics? Write an essay about Peter Higgs, who was given a Noble Prize in Physics in 2013. Having researched elementary particles, Higgs boson in particular, his work has a significant impact on science. So, the useful tip for you is, try to remember everything that happened in 2013 and choose the event you were impressed by. On the other hand, there are things that happen all the time. The humanity hasnt found a solution to many problems, such as environmental pollution, poverty, terrorism etc. Anyway, there are lots of topics to choose from. If you need some help with writing your essay, we can eagerly help you with such kind of task. is one of professional essay writing services which provides students with quality custom essays and research papers. We write custom papers on any essay topics!