Complete the 3 questions below.
I need help with a Economics question. All explanations and answers will be used to help me learn.
- If nominal interest rates in America rise but real interest rates fall, predict what will happen to the U.S. dollar exchange rate. [6 marks]
- Explain the law of one price and the theory of purchasing power parity. Why doesn’t purchasing power parity explain all exchange rate movements in the short run? What factors determine long-run exchange rates? [8 marks]
- If Mexicans go on a spending spree and buy twice as much French perfume and twice as many Japanese TVs, English sweaters, Swiss watches, and bottles of Italian wine, what will happen to the value of the Mexican peso? [6 marks]