Wages often respond slowly to changes in output

Suppose the exchange rate is 10 pesos per dollar and you use $1000 to purchase a one-year Mexican bond that pays 10% interest. Next year, the exchange rate is 11 pesos per dollar

Assuming you convert your funds back to U.S. dollars, how much money will you have in one year? A) $1000 B) $1100 C) $91 D) $0

Which of the following would make a reasonable hypothesis to test?

A) Rising inflation is bad for the U.S. economy. B) An inflation rate above 4% is dangerous for the British economy. C) As interest rates increase, eventually the inflation rate will decline. D) Increases in inflation are worse for the U.S. economy than are increases in public sector borrowing.