If the U.S. price level rises relative to the Japanese price level, purchasing power parity predicts a long run increase in the value of the dollar relative to the yen.

Question

Quizplus · Accepted Answer

Purchasing power parity predicts that if the U.S. price level rises relative to the Japanese price level, the value of the dollar would decrease relative to the yen in the long run, as it would take more dollars to buy the same amount of goods and services in Japan.

If the US Price Level Rises Relative to the Japanese Price Level