11. Suppose that apples were the only good produced in the United States and Mexico. In Mexico, apples sell for 12 pesos apiece. In the Unites states, apples sell for $0.50 apiece. a. According to the theory of Purchasing Power Parity, what is the equilibrium nominal exchange rate between the U.S. dollar and the Mexican peso? What would the real exchange rate between the U.S. and Mexico in that case? b. Suppose the price of apples rises at a rate of 3% per vear in the U.S., but at a rate of 12% per year in Mexico. According to PPP, by how much should we expect the nominal U.S dollar/Mexican peso exchange rate to change in the course of 1 year (up, or down, and by what %)? C. Starting at the exchange rate you calculated in (a), and assuming the rates of inflation remain the same as in (b), what nominal exchange rate would you expect in 3 years?

11. Suppose that apples were the only good produced in the United States and Mexico. In Mexico, apples sell for 12 pesos apiece. In the Unites states, apples sell for $0.50 apiece. a. According to the theory of Purchasing Power Parity, what is the equilibrium nominal exchange rate between the U.S. dollar and the Mexican peso? What would the real exchange rate between the U.S. and Mexico in that case? b. Suppose the price of apples rises at a rate of 3% per vear in the U.S., but at a rate of 12% per year in Mexico. According to PPP, by how much should we expect the nominal U.S dollar/Mexican peso exchange rate to change in the course of 1 year (up, or down, and by what %)? C. Starting at the exchange rate you calculated in (a), and assuming the rates of inflation remain the same as in (b), what nominal exchange rate would you expect in 3 years?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Open-economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 8PA

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