According to purchasing power parity, a rise in inflation in Australia relative to the rest of the world will lead to
A)an exchange rate appreciation.
B)a balance of payments surplus.
C)an exchange rate depreciation.
D)a balance of payments deficit.

Question

Quizplus · Accepted Answer

According to purchasing power parity, if inflation in Australia rises relative to the rest of the world, the Australian dollar will depreciate to maintain the purchasing power parity.

According to Purchasing Power Parity, a Rise in Inflation in Australia