Considering the Theory of Purchasing Power Parity, If Inflation in Mexico

question 92

Multiple Choice

Considering the theory of purchasing power parity, if inflation in Mexico is 5% while prices in the U.S. are stable; we should expect over the period of a year:

• A) the dollar to appreciate 5% relative to the peso.
• B) the peso to appreciate 5% relative to the dollar.
• C) the nominal exchange rate to stay fixed.
• D) the real exchange rate of U.S. goods / Mexican goods to appreciate 5%.

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Definitions:

Determinate Growth

A growth pattern in plants and some animals in which growth stops after reaching a certain size or age.

Senescence

The aging process.

Germination

Resumption of growth of an embryo or spore; occurs when a seed or spore sprouts

Monocot

A group of flowering plants characterized by having one cotyledon (seed leaf), parallel leaf veins, and flower parts usually in multiples of three.