If prices in Mexico rise at a higher rate than prices in the U.S., then according to purchasing-power parity the U.S. nominal exchange rate with Mexico should rise.

Question

Quizplus · Accepted Answer

According to purchasing-power parity (PPP), if prices in Mexico rise faster than in the U.S., the Mexican peso should depreciate relative to the U.S. dollar, causing the nominal exchange rate (USD/MXN) to rise.

If Prices in Mexico Rise at a Higher Rate Than