1) Assume that the following are the predicted inflation rates in these countries for the year: 2% for the United States, 3% for Canada; 4% for Mexico, and 5% for Brazil. According to the purchasing power parity and everything else held constant, which of the following would we expect to happen?
A) The Brazilian real will depreciate against the U.S. dollar.
B) The Mexican peso will depreciate against the Brazilian real.
C) The Canadian dollar will depreciate against the Mexican peso.
D) The U.S. dollar will depreciate against the Canadian dollar.
2) According to the purchasing power parity theory, a rise in the United States price level of 5 percent, and a rise in the Mexican price level of 6 percent cause
A) the dollar to appreciate 1 percent relative to the peso.
B) the dollar to depreciate 1 percent relative to the peso.
C) the dollar to depreciate 5 percent relative to the peso.
D) the dollar to appreciate 5 percent relative to the peso.
3) Higher tariffs and quotas cause a country"s currency to ________ in the ________ run, everything else held constant.
A) depreciate; short
B) appreciate; short
C) depreciate; long
D) appreciate; long