Suppose That the Price of a Plasma TV Is $1,200

question 44

Multiple Choice

Suppose that the price of a plasma TV is $1,200 in the United States and 13,200 pesos in Mexico. If the current exchange rate is 10 pesos to the dollar, then purchasing power parity theory would predict that in the long run

• A) Mexico will begin to import plasma TVs from the United States.
• B) the exchange value of the peso will depreciate.
• C) the exchange value of the peso will appreciate.
• D) the exchange value of the dollar will depreciate.

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