If a dollar bought 1,000 Chilean pesos ten years ago and 1,500 lire now, and inflation for that period was 25 percent in the United States and 100 percent in Chile, then:

Question

Quizplus · Accepted Answer

The inflation rate in Chile was higher than in the United States, so the value of the Chilean peso depreciated more than the US dollar. Therefore, it takes more US dollars to buy the same amount of Chilean pesos now as it did ten years ago. This means that traveling in Chile is more expensive now than it was ten years ago. The fact that the dollar buys more Italian lire now than it did ten years ago is irrelevant to the question about traveling in Chile. The purchasing-power parity theory is not necessarily correct in this case.

If a Dollar Bought 1,000 Chilean Pesos Ten Years Ago