(Solved): Purchasing-power parity holds between the nations of Ectenia and Wiknam, where the only commodity ...

Purchasing-power parity holds between the nations of Ectenia and Wiknam, where the only commodity is Spam. In 2020, a can of Spam cost 4 dollars in Ectenia and 24 pesos in Wiknam. The exchange rate between Ectenian dollars and Wiknamian pesos was pesos per dollar. Over the next 20 years, inflation is expected to be \( 3.5 \) percent per year in Ectenia and 7 percent per year in Wiknam. If this inflation comes to pass, what will happen over this period to the price of Spam and the exchange rate? Over this period, the price of Spam in Ectenia will_ and the price of Spam in Wiknam will 70 from the chapter "The Basic Tools of Finance.") The exchange rate between the two countries will True or False: Ectenia will likely have a higher nominal interest rate. True False A friend of yours suggests a get-rich-quick scheme: borrow from the nation with the lower nominal interest rate, invest in the nation with ther nominal interest rate, and profit from the interest-rate differential. Which of the following statements explains the flaw in your friend's logic? The scheme would work only if there is greater inflation in one nation than in the other. The scheme would work only if the real interest rates are the same in both nations. Nominal exchange rates adjust for the effects of inflation.