was also 100, and in the foreign exchange market one Pugelovian pnut (pronounced “p’noot”) was equal to $1. In 2013, the U.S. price level had risen to 260, and the Pugelovian price level had risen to 390. a. According to PPP, what should the dollar–pnut exchange rate be in 2013? b. If the actual dollar–pnut exchange rate is $1/pnut in 2013, is the pnut overvalued or undervalued relative to PPP?

was also 100, and in the foreign exchange market one Pugelovian pnut (pronounced “p’noot”) was equal to $1. In 2013, the U.S. price level had risen to 260, and the Pugelovian price level had risen to 390. a. According to PPP, what should the dollar–pnut exchange rate be in 2013? b. If the actual dollar–pnut exchange rate is $1/pnut in 2013, is the pnut overvalued or undervalued relative to PPP?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter34: International Finance

Section34.3: Fixed Exchange Rates

Problem 3ST

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In 1990, the price level for the United States was 100, the price level for Pugelovia

was also 100, and in the foreign exchange market one Pugelovian pnut (pronounced

“p’noot”) was equal to $1. In 2013, the U.S. price level had risen to 260, and the

Pugelovian price level had risen to 390.

a. According to PPP, what should the dollar–pnut exchange rate be in 2013?

b. If the actual dollar–pnut exchange rate is $1/pnut in 2013, is the pnut overvalued

or undervalued relative to PPP?

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