During 1995, the Mexican peso exchange rate rose from 5.33 peso/$ to 7.64 peso/$. At the same time, US inflation was approximately 3% in contrast to Mexican inflation of about 48.7%. By how much did the nominal value of the peso change during 1995?By how much did the real value of the peso change over this period?

The nominal exchange rate can be defined as the valuation of one currency in terms of another. It is…

Answered: During 1995, the Mexican peso exchange…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Open-economy Macroeconomics: Basic Concepts

Section13.3: A First Theory Of Exchange-rate Determination: Purchasing-power Parity

Problem 3QQ

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During 1995, the Mexican peso exchange rate rose from 5.33 peso/$ to 7.64 peso/$. At the same time, US inflation was approximately 3% in contrast to Mexican inflation of about 48.7%.
1. By how much did the nominal value of the peso change during 1995?
2. By how much did the real value of the peso change over this period?

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