Suppose the Current Exchange Rate Between the U

question 4

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 Mexico rises 15 percent while the U.S.price level remains constant.According to the purchasing power parity theory,which of the following exchange rates comes closest to being the equilibrium exchange rate?

• A) $0.087 = 1 peso
• B) $0.085 = 1 peso
• C) $0.115 = 1 peso
• D) $0.13 = 1 peso

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Definitions:

Lingual Frenulum

A fold of mucous membrane located under the tongue, which assists in the mobility and positioning of the tongue.

Vestibule

A space or cavity at the entrance of some structures in the body, such as the mouth, ear, or nose.

Gingivae

Also known as gums, these are the soft tissues that surround and protect the teeth in the mouth.

Papillae

Projections on the surface of the tongue that contain taste buds, involved in the sensation of taste.