You go on vacation to Mexico and take $1,000 with you.During your time in Mexico,the peso appreciates in value relative to the dollar.It follows that

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When the peso appreciates in value relative to the dollar, it means that your dollars can buy fewer pesos. Therefore, when you go to buy goods and services in Mexico, you will have to spend more dollars to buy the same amount of pesos, resulting in being able to buy fewer goods and services. This is known as a decrease in purchasing power. Mexican workers, paid in pesos, will also be affected by this appreciation as they will earn more pesos but still have the same amount of goods and services to purchase with those pesos. Therefore, they will also experience a decrease in purchasing power. The purchasing power parity theory is not relevant in this scenario as it relates to the long-term equilibrium of exchange rates and prices. This scenario is a short-term fluctuation in exchange rates.

You Go on Vacation to Mexico and Take $1,000 with You.During