Assume that the following are the predicted inflation rates in these countries for the year: 2 percent for Canada, 3 percent for Canada; 4 percent for Mexico, and 5 percent for Brazil. According to the purchasing power parity and everything else held constant, which of the following would we expect to happen?

Question

Quizplus · Accepted Answer

According to the purchasing power parity, the country with the higher inflation rate will experience a depreciation of its currency relative to the country with the lower inflation rate. Therefore, we would expect the Brazilian real to depreciate against the Canadian dollar.

Assume That the Following Are the Predicted Inflation Rates in These