Question : International Trade
Please answer the 3 questions with a minimum of 150 words for each solution. Please use USA sources for solutions.
Flexible Exchange Rate:
What are the advantages of flexible exchange rates respect to fixed exchange rates? Are there disadvantages?
PPP (Purchasing Power Parity):
A Big Mac costs $5 in the U.S. and 7 euros in Germany. If the exchange rate is 0.6 Euros per dollar, is the dollar undervalued or overvalued against the Euro? What would you expect to happen in the currency market? What objection do you have to using this method?
New Trade Theory (Krugman):
Do you think that the new theory of trade explain China's emergence as the world's factory? Explain.