Suppose that the USA had an inflation rate of 2% and Mexico had an inflation rate of 3% for this year. Also, assume that the market exchange rate between the two currencies is 19 Pesos=1 USD. What is the RELATIVE PPP exchange rate at the end of this year? –THINK ABOUT WHICH COUNTRY NEEDS TO GO ON TOP!! **You will need your answer for the next question too. 

If prices decrease, then consumer surplus and producer surplus will increase. 

Quizzes are open note. I can use any notes that I HAVE TAKEN. 

“Arguing against globalization is like arguing against the laws of gravity”… This was said by Adam Smith, the father of economics as we now teach it. 

Quick action allowed the financial crisis to be contained to Asia (hence the name Asian financial crisis). 

Market exchange rates only apply to goods that are traded. They are not influenced by goods that are not traded. That makes it hard to estimate the real cost of bundles in other countries where costs can be dramatically different. 

The central bank of Thailand found itself with a serious problem with their monetary policy. This is because: 

Suppose that a bundle of goods sells for $425 in the USA and it sells for 12,750 Baht in Thailand. The current exchange rate between the countries is 31.9 Baht/$. The market exchange rate turns out to be the Absolute Purchasing Power Parity rate.  

Suppose that a bundle of goods sells for $412 in the USA and it sells for 12,990 Baht in Thailand.The absolute PPP exchange rate is ____ Baht per dollar.  (Round to TWO digits behind the decimal.)

The lender of last resort is the World Bank. When a country runs out reserve currency, it can request a loan from them.