Refer to the information provided in Figure 9.3 below to answer the question(s) that follow.  Figure 9.3Refer to Figure 9.3. This firm's shutdown point corresponds to Point

Suppose in 1992, the average price level in Pacifica was 100, and that in Atlantica it was also 100. In the foreign exchange market 1 Pacifica pound was exchanged for 1 Atlantica mark. In 2012, the price level in Pacifica had risen to 280 and the price level in Atlantica had risen to 360.a. According to the relative purchasing power parity (PPP) theory, what should the pound-mark exchange rate be in 2012?b. If the actual pound per mark exchange rate is 0.5 pound/mark in 2012, is the mark overvalued or undervalued relative to its PPP value?

What will be an ideal response?

Initially trade between Australia and the United States is balanced. Then, if a change in the exchange rate increases the U.S. dollar price of Australian goods, ceteris paribus, we would expect

A. a trade deficit in Australia. B. a trade deficit in the United States. C. a trade surplus in the United States. D. a trade deficit in both countries.