A market basket of goods and services

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Reference no: EM131006276

A market basket of goods and services that costs $100.00 in the United States costs 800 pesos in Mexico, and the current nominal exchange rate is 10 pesos per U.S. dollars. Over the next five years, the cost of that market basket rises to $120 in the United States and to 1,200 pesos in Mexico, although the nominal exchange rate remains at 10 pesos per U.S. dollar. Calculate the following: Please show your calculation

a. The real exchange rate now if today’s price index in both countries is 100?

b. The real exchange rate five years from now, if today’s price index in both countries is 100.

c. Purchasing power parity today

d. Purchasing power parity five years from now.

Reference no: EM131006276

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