What would happen to the exchange rate of two countries

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Other things the same, the real exchange rate between U.S. and South African goods would be higher if (a) prices in the U.S. were higher, or the number of South African rand the dollar purchased were higher. (b) prices in the U.S. were higher, or the number of South African rand the dollar purchased were lower. (c) prices in the U.S. were lower, or the number of South African rand the dollar purchased were higher. (d) prices in the U.S. were lower, or the number of South African rand the dollar purchased were lower.

a. A Thanksgiving turkey costs $30 in the US and 40 C$ (Canadian dollars). What would the C$/(US dollar) exchange rate be if purchasing power parity holds?

b. From the same problem, suppose monetary expansion in the US caused all prices in the US to increase by 50%, so the turkey would be 45 US dollars, then what would happen to the exchange rate between the Canadian dollar and the US dollar? (show the exact computation and result).

Reference no: EM13198654

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