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Suppose the Current Exchange Rate Between the U

Question 18

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 Mexico rises 25 percent while the U.S.price level remains constant.According to the purchasing power parity theory,what will be the equilibrium exchange rate?


A) $0.15 = 1 peso
B) $0.09 = 1 peso
C) $0.16 = 1 peso
D) $0.096 = 1 peso

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