Principles of Macroeconomics / Unit 13 MAC 1205 worked example, 60 to 90 seconds
Converting at a Rate, Before and After
The idea
Convert prices at a given rate, then recompute after the rate moves, and say who is better off. Work in the currency of the buyer throughout, because that is the only way to see what the buyer actually pays. Take the dollar from 10 pesos to 12.5 pesos, an appreciation of the dollar.
In practice
A machine made in the United States and priced at 4,000 dollars cost 40,000 pesos before the move and 50,000 pesos after, so it became dearer for the Mexican buyer and the American exporter is harder to buy from. Now run it the other way. An item made in Mexico and priced at 600 pesos cost 60 dollars before the move and 48 dollars after, so it became cheaper for the American buyer and Mexican exports into the United States are easier to sell. The same single movement did both things at once.
Where people slip
Keep the direction of the quotation fixed while you work. Pesos per dollar and dollars per peso move in opposite directions, and switching between them mid-problem is the reliable way to get the answer backwards. Fix one form, convert once at the start, and do not flip.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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