Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 31 - Part XI - Open-Economy Macroeconomics: Basic Concepts - Problems and Applications - Page 680: 7

Answer

If purchasing power parity holds, the peso-dollar exchange rate is 16 pesos/dollar. When the price doubles to 24 pesos per dollar, the exchange rate increases to 32 pesos/dollar.

Work Step by Step

12 pesos purchases the same as .75 USD $12/.75 = 16$ Now the price doubles to 24 pesos 24 pesos purchases the same as .75 USD $24/.75 = 32$
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