Suppose the price of gold is initially 300 U.S.dollars per ounce in New York and 450 Canadian dollars per ounce in Toronto, Canada.If the law of one price holds for gold, the nominal exchange rate is ______ Canadian dollars per U.S.dollar.If Canada experiences inflation, such that the price of gold rises to 510 Canadian dollars per ounce, but the U.S.does not experience any inflation, the nominal exchange rate would be ______ Canadian dollars per U.S.dollar.
A)0.59; 0.67
B)0.67; 0.59
C)1.70; 1.50
D)1.50; 1.70

Question

Quizplus · Accepted Answer

Initially, the exchange rate is 450/300 = 1.50 Canadian dollars per U.S. dollar. After inflation in Canada, the exchange rate becomes 510/300 = 1.70 Canadian dollars per U.S. dollar.

Suppose the Price of Gold Is Initially 300 U