Question

20 multiple choice 2 points
an american computer is priced at \\$1,200. if the exchange rate between the u.s. dollar and the mexican peso is \\$0.09 = 1 peso, approximately how many pesos would a mexican buyer pay for the computer?
13,333 pesos
133.50 pesos
15,075 pesos
108 pesos

21 multiple choice 2 points
the purchasing power parity theory predicts better in the ____ run, and when there ____ in inflation rates across countries.
short; are large differences
long; are large differences
short; is little difference
long; is little difference

Explanation:

Calculate the price in pesos for Question 20

$$ \text{Price in USD} = \$1,200 $$

$$ \text{Exchange rate} = \$0.09 \text{ per peso} $$

$$ \text{Price in pesos} = \frac{\$1,200}{\$0.09/\text{peso}} \approx 13,333.33 \text{ pesos} $$

Analyze Purchasing Power Parity for Question 21

$$ \text{PPP holds better in the long run due to price adjustments.} $$

$$ \text{PPP is driven by large differences in inflation rates across countries.} $$

Answer:

Question 20

• 13,333 pesos (Correct answer)
• 133.50 pesos
• 15,075 pesos
• 108 pesos

Question 21

• short; are large differences
• long; are large differences (Correct answer)
• short; is little difference
• long; is little difference