Suppose the Current Exchange Rate Between the U

question 71

Multiple Choice

Suppose the current exchange rate between the U.S.dollar and the Mexican peso is $0.12 = 1 peso.Furthermore,suppose the price level in the United States rises 25 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) $0.15 = 1 peso
• B) $0.09 = 1 peso
• C) $0.13 = 1 peso
• D) $0.08 = 1 peso

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