Question 5 (a) Can you identify any implications of purchasing power parity? (b) Examine the exchange rate in your country compared to the Caribbean region. Do you see any large differentials or...

Question 5

(a) Can you identify any implications of purchasing power parity?

(b) Examine the exchange rate in your country compared to the Caribbean region. Do you see any large differentials or variations in the exchange rates?

(c) Do you think LOOP really works? Give a reason for your answer?

(d) If a can of spam costs $2 in the US and 6 pesos in Mexico, what would be the peso/dollar exchange rate if PPP holds? 5. If inflation is 3.5% in US and 7% in Mexico. What will happen to the peso/dollar exchange rate?