Assume that the United States faces a percent inflat... - Solved MCQs & Answer

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Assume that the United States faces a percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing power parity theory over the long run the dollar would be expected to?

Aappreciate by 8 percent against the yen

Bremain at its existing exchange rate

Cdepreciate by 8 percent against the yen

Correct answer

C. depreciate by 8 percent against the yen

Explanation

The correct answer is depreciate by 8 percent against the yen.

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