Part -1:
1. The Big Mac Index computed by The Economist magazine has consistently found the U.S. dollar to be undervalued against some curren-cies computed by consistently
cies and overvalued against others. This finding seems to call for a rejection of the purchasing power parity theory. Explain why this index may not be a valid test of the theory.
Part -2:
1. Why would China want its own currency to be undervalued relative to the U.S. dollar? How does China maintain an undervalued currency?
Part -3:
1. "Subsidizing the price of milk or other agricultural products is not very expensive considering how many consumers there are in the United States. Therefore, there is little harmful effect from such subsidies." Evaluate this statement.
Si ihsulv nmnra MS are likely to have a mimhpr of spenndary Pffpnts in adrkfinn to the dirprt effect on dairy nnr.ps What imnant do vnii sun-
pose farm subsidies are likely to have on the following?
a. Housing prices
b. Technological change in the dairy industry
c. The price of dairy product substitutes
Part -4:
1. The motivation behind campaign finance reform was to limit the influence of special interests. In what sense could that legislation have the opposite effect?
Part -5:
1. What characterizes a winner-take-all labor market? Offer some reasons why corporate heads now earn much more than they did in the 1970s.
Part -6:
1. How would the UAW benefit for increased demand for GM and Chrysler vehicles?