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Suppose the price of gold is initially 300 U.S. dollars per ounce in New York and 450 Canadian dollars per ounce in Toronto, Canada. If the law of one price holds for gold, the nominal exchange rate is ______ Canadian dollars per U.S. dollar. If Canada experiences inflation, such that the price of gold rises to 510 Canadian dollars per ounce, but the U.S. does not experience any inflation, the nominal exchange rate would be ______ Canadian dollars per U.S. dollar.

Respuesta :

Answer:

1.5 and 1.7

Explanation:

Suppose the price of gold is initially 300 U.S. dollars per ounce in New York and 450 Canadian dollars per ounce in Toronto, Canada. If the law of one price holds for gold, the nominal exchange rate is 1.5 Canadian dollars per U.S. dollar.

The law of one price expects an equation of value in different countries, hence the value of a $US = 450 / 300 = 1.5 Canadian dollars

If Canada experiences inflation, such that the price of gold rises to 510 Canadian dollars per ounce, but the U.S. does not experience any inflation, the nominal exchange rate would be 1.7 Canadian dollars per U.S. dollar.

The law of one price expects an equation of value in different countries, hence the value of a $US = 510 / 300 = 1.7 Canadian dollars

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