Suppose that over a one-year period, the number of Mexican Pesos required to purchase one U.S. Dollar remains constant. During this same year, the general price level for goods and services rises by 10% in Mexico, while it rises by only 2% in the United States. Based on this information, which of the following conclusions is most accurate?

Competitiveness Analysis: Beyond the Nominal Rate

Assessing International Competitiveness

If a country's currency experiences a nominal depreciation, its goods and services will automatically become more competitive on the international market.

Nominal vs. Real Competitiveness

Imagine two countries, Country A and Country B. Over the past year, Country A's currency has appreciated by 5% against Country B's currency. During the same period, the annual inflation rate was 2% in Country A and 10% in Country B. Based on this information, what was the most likely impact on the international competitiveness of goods produced in Country A?

Match each economic scenario with its most likely effect on the international competitiveness of the domestic country's goods. Assume the 'law of one price' does not hold perfectly and that changes in competitiveness are driven by changes in the relative price of goods between countries.

Sourcing Decision for a Global Firm

An economic analyst observes that the nominal exchange rate between Country X's currency and Country Y's currency has remained unchanged over the past year. Based solely on this information, the analyst concludes that the international competitiveness of goods from Country X relative to Country Y has also been stable. Why is this conclusion potentially incorrect?

A U.S. company observes that over the past year, the nominal exchange rate (USD per British Pound) has increased by 3%. During this same period, the general price level in the U.S. rose by 2%, while the general price level in the United Kingdom rose by 8%. For the U.S. company, this combination of factors means the real cost of goods from the United Kingdom has effectively (1), making them (2) competitive relative to U.S. goods. (Provide your answers for (1) and (2) separated by a comma, e.g., 'answer1, answer2')