Suppose the Exchange Rate Between the U

question 35

Multiple Choice

Suppose the exchange rate between the U.S. dollar and the Mexican peso was $1 = 5 pesos. A can of Pepsi sells for $2 in Boston and 12 pesos in Mexico City.

• A) The U.S. dollar would be expected to depreciate.
• B) Purchasing power parity prevails with these prices.
• C) Purchasing power parity does not prevail with these prices.
• D) None of the above answers is correct.