Assume the following conditions hold true: 1) the $-to- exchange ratio is fixed at $2 to 1 2) the dollar price of gold on a Chicago commodity exchange is $2,000 3) the pound price of gold on a London commodity exchange is 2,000 4) gold can be transported from one city to another completely costlessly (i.e., no transaction costs) 5) the price of gold in Chicago is fixed while the price in London is free to fluctuate 6) ceteris paribus According to purchasing-power prity, arbitrageurs will gold in Chicago and in London. gold in London to drive the price of gold buy; sell; up sell; buy; down buy; sell; down sell; buy; up

Assume the following conditions hold true: 1) the $-to- exchange ratio is fixed at $2 to 1 2) the dollar price of gold on a Chicago commodity exchange is $2,000 3) the pound price of gold on a London commodity exchange is 2,000 4) gold can be transported from one city to another completely costlessly (i.e., no transaction costs) 5) the price of gold in Chicago is fixed while the price in London is free to fluctuate 6) ceteris paribus gold in Chicago and in London According to purchasing-power prity, arbitrageurs will gold in London to drive the price of gold buy: sell: up sell; buy: down buy: sell; down sell; buy: up