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

question 74

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:

• 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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