Assume that the United States faces an 8 percent inflation rate while no (zero)

Question

Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power parity theory, the dollar would be expected to? None of the above Depreciate by 8 percent against the yen Remain at its existing exchange rate Appreciate by 8 percent against the yen Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power parity theory, the dollar would be expected to? None of the above Depreciate by 8 percent against the yen Remain at its existing exchange rate Appreciate by 8 percent against the yen None of the above Depreciate by 8 percent against the yen Remain at its existing exchange rate Appreciate by 8 percent against the yen None of the above

Explanation / Answer

Remain at its existing exchange rate.

Inflation in a country has no relation to exchange rate. xchange rate depends on exchnage of goods etc

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