Seminar Macroeconomics

Macroeconomics

Table of Contents

Title Page .1

Table of Contents .2

Abstract .3

I Introduction .3-5

II . Explanation for Purchasing Power Parity .5-6

III . Relative Purchasing Power Parity .7

IV . Nonlinearity and Nonstationarity .7-9

V . Purchasing Power Parity Adjustment to Gross Domestic Products .9-10

VI . Purchasing Power Parity Comparison to Welfare Economic .10-12

VII . Comparing Economies of Countries using Purchasing Power Parity .12-17

VIII . Purchasing Power Parity of United Kingdom .18-20

IX . Conclusion : Comparison of Germany and

United Kingdom .20-23

X Tables .23-25

References .26

Abstract

This research will comprehensively discuss the Theory of Purchasing Power Parity and the comparison of this between Germany and United Kingdom . This will give specific analysis of the different areas about Purchasing Power Parity . Given by data researched from different economic documents , the study of the structures of Purchasing power parity are tackled and explored in this

I . Introduction

Purchasing Power Parity (PPP ) is the method of using the long-run equilibrium exchange rate of two currencies to equalize the currencies purchasing power . This theory was formulated and developed by Gustav Cassel in the year 1920

The Swedish economist Gustav Cassel was a founding member of the Swedish School of economics , together with Knut Wicksell and David Davidson . He earned a degree in mathematics at the University of Uppsala and studied economics in Germany before returning to the University of Stockholm where he worked from 1903 to 1936 . Two of his most prominent students were later Nobel laureates , Gunnar Myrdal and

Bertil Ohlin . Some of his most important work is on the theory of interest , which he conceived of as a regular price , namely the price of the input `waiting . He also popularized the notion of purchasing power parity , as discussed in this chapter . Supposedly , his dying words were `A world currency

It is based on the Law of One Price which stated that in an efficient market , identical goods must have only one price . Purchasing power parity is also called absolute purchasing power parity to distinguish it from a related idea called relative purchasing power parity , which predicts the relationship between the two countries relative inflation rates and the change in the exchange rate of their currencies

A purchasing power parity HYPERLINK "http /en .wikipedia .org /wiki /Exchange_rate " \o "Exchange rate exchange rate equalizes the purchasing power of different HYPERLINK "http /en .wikipedia .org /wiki /Currencies " \o "Currencies " currencies in their home countries for a given basket of goods . These special exchange rates are often used to compare the HYPERLINK "http /en .wikipedia .org /wiki /Standard_of_living " \o "Standard of living " standards of living of two or more countries . The adjustments are meant to give a better picture than comparing HYPERLINK "http /en .wikipedia .org /wiki /Gross_domestic_product " \o "Gross domestic product " gross domestic products (GDP ) using market exchange rates This type of adjustment to an exchange rate is controversial because of the difficulties of finding comparable HYPERLINK "http /en .wikipedia .org /wiki /Market_basket " \o "Market basket " baskets of goods to compare purchasing power...