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Page 1: Use the following information to answer questions a) b) and c) below: Suppose: Page 2: The law of one price holds for wheat

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Page 1: Use the following information to answer questions a) b) and c) below: Suppose: Page 2: The law of one price holds for wheat 2 The price of wheat is $4.50 per bushel in Canada The peso/dollar exchange rate is 10 age 32 a) Calculate the price of wheat in terms of pesos. (1 mark) b) Suppose the price level in Mexico rises by 10 percent relative to the price level in Canada. 4: i) Calculate the new price level in Mexico ii) Calculate the new peso/dollar exchange rate. (Assume purchasing-power parity holds between Canada and Mexico). c) Now, suppose a basket of goods costs $100 in Canada while the cost of the same basket of goods in Mexico costs 950 pesos. The peso/dollar exchange rate is 15 Based on the information in part c), calculate real exchange rate

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