Mon 17 Jul, 2017 10:55 pm
The current price level in the U.S. is $14,000 per consumption bundle, and £10,000 per
consumption bundle in the U.K.. The current exchange rate is $1.65/£. The annual inflation rate is
expected to be 2% in the U.S. and 5% in the U.K. (1) If £ weakens against dollar by 4% in the next
year, discuss how the purchasing power of U.S. dollar is going to change in the next year. Which
country will become more competitive in the world market than before? Explain. (2) In what
situation the relative purchasing power of USD does not change in the next year?
My notes are just confusing me, professor is difficult to learn from and doesn't follow our book very well. Can anyone explain the steps to solve this?