According to the theory of purchasing power parity, if the price level in the united states rises by 5% while the price level in Mexico rises by 6%, then the dollar will.
1..... D. appreciate 1% relative to peso.
The theory of PPP explains that exchange rate is automatically changed according to change in the price level of relative countries . As price level increases more in Mexico by 1% so peso will depreciate by 1% or dollar will appreciate by 1% .
2...... B. Changes in the prices of goods and services not traded internationally.
According to the theory of PPP , the exchange rate of two currencies depends upon prevailing price levels in both the countries. However all goods are not traded , how these not traded goods prices affects exchange rate?. This theory doesn't fully explain this scenario.
Purchasing is the process a business or enterprise makes use of to accumulate goods or services to perform its goals. although there are several companies that try to set standards inside the shopping manner, procedures can range greatly between corporations.
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