A foreign currency will, on average, appreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

Question

Quizplus · Accepted Answer

According to the theory of purchasing power parity, a currency with a lower inflation rate than another will appreciate against the other currency, as the real purchasing power of the currency increases.

A Foreign Currency Will, on Average, Appreciate Against the U