Suppose the Current Exchange Rate Between the U

question 78

Multiple Choice

Suppose the current exchange rate between the U.S.dollar and the Mexican peso is $0.10 = 1 peso.Furthermore,suppose the price level in the United States rises 15 percent at a time when the Mexican price level is stable.According to the purchasing power parity theory,what will be the new equilibrium exchange rate?

• A) $0.085 = 1 peso
• B) $0.13 = 1 peso
• C) $0.15 = 1 peso
• D) $0.115 = 1 peso
• E) none of the above

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Definitions:

Normative Economics

A branch of economics that expresses value judgments about economic fairness or what the economy ought to be like.

Positive Economics

The branch of economics that concerns the description and explanation of economic phenomena.

Consequences

The outcomes or effects that stem from a particular action or decision, which can be intended or unintended and positive or negative.

Stability

The condition of an economy characterized by constant or predictable levels of growth, inflation, and employment.