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%.

---

Definitions:

Power Of Suggestion

The psychological phenomenon where an individual’s thoughts, feelings, or behaviors are influenced by suggestive words, thoughts, or ideas from another person.

Conversion Symptoms

Physical symptoms that occur without a physiological basis, often resulting from psychological conflict or stress.

Conversion Disorder

A mental condition in which a person has blindness, paralysis, or other nervous system symptoms that cannot be explained by medical evaluation.

Spontaneous Self-hypnosis

The natural occurrence of hypnotic-like states without formal induction, often triggered by extreme focus or stress.