Suppose the current exchange rate between the U.S. dollar and the Mexican peso is $0.10 = 1 peso. Furthermore, suppose the price level in the United States rises 15 percent at a time when the Mexican price level is stable. According to the purchasing power parity theory, what will be the new equilibrium exchange rate?
A) $0.085 = 1 peso
B) $0.13 = 1 peso
C) $0.15 = 1 peso
D) $0.115 = 1 peso
E) none of the above
D
Economics
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