Kushal Pens

What is mean by purchasing power parity theory whch is widely considered as kind of foreign exchange rate? The purchasing power parity theory has been popularized during the inter-war (world war 1, year 1918) period by Gaustav cassel , the swedish economist. Also, called PPP Theory widely. According to this theory, rates of exchange between two countries are determined by relative price level. The actual rate of exchange must be such that same amount of purchasing power should be same in both countries. For e.g. If by spending NPR 110/- we can buy an amount of goods in Nepal as we can buy with USD 1/- in America will be NPR 110/- to USD 1/-. Hence, the rate of exchange determined in relation to price level is known as purchasing power parity. (Source of image is internet) Determination of exchange rate under PPP Theory The PPP Theory is determined by comparing general price level.  Note, not the price level of internationally traded goods. Prices of ex...

On the basis of cost of production explain the international trade focusing more on David Ricardo's' Comparative cost advantage theory? Comparative cost advantage theory was propounded by 18th Century economist David Ricardo which is attributed in his work "Principles of Political economy and Taxation" published in 1817 AD. Latter J. S. Mill, Cairns and Bastable developed the concept. American economist Prof. Taussing and German Prof. Haberier sophisticated and refined it.  Comparative cost advantage theory is more than absolute cost advantage theory. Hence, it is revised and improved version of Adam smiths' absolute cost advantage theory. According to this theory, the cost of production of same good varies in different nation as a result of peculiar environment, way of living, culture and tradition, topography and human specialization than in other nation. Due to difference in cost of production of same goods in different country, a country will ...