Question
Suppose the average price of a fixed basket of goods and services is $50 in the U.S. and 150 pesos in Mexico. The theory of
Suppose the average price of a fixed basket of goods and services is $50 in the U.S. and 150 pesos in Mexico. The theory of PPP predicts that the exchange rate in the long run is ___ Mexican pesos per one U.S. dollar. If the exchange rate is five Mexican pesos per one U.S. dollar, in the long run, the U.S. dollar will ___ against the Mexican peso so that PPP Holds.
Suppose a tube of colgate costs 250 Yen in Tokyo and $5 in San Francisco. If the real exchange rate is one-fourth a tube of Colgate in the U.S. for one tube of colgate in Tokyo, how many yen should you receive in exchange for $1?
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