Assume that the New Zealand inflation rate is higher than the U.S. inflation rate. This will cause U.S. consumers to ____ their imports from New Zealand and New Zealand consumers to ____ their imports from the United States. According to purchasing power parity (PPP), this will result in a(n) ____ of the New Zealand dollar (NZ$).

Question

​Assume that the New Zealand inflation rate is higher than the U.S. inflation rate. This will cause U.S. consumers to ____ their imports from New Zealand and New Zealand consumers to ____ their imports from the United States. According to purchasing power parity (PPP), this will result in a(n) ____ of the New Zealand dollar (NZ$).

Quizplus · Accepted Answer

If the inflation rate in New Zealand is higher than in the U.S., the prices of goods and services in New Zealand would increase faster than in the U.S. This would lead to a decrease in demand for imports from New Zealand by U.S. consumers, as they become more expensive, and an increase in demand for imports from the U.S. by New Zealand consumers, as they become relatively cheaper. This would result in a depreciation of the New Zealand dollar (NZ$) according to the purchasing power parity (PPP) theory. Therefore, the correct answer is C.

​Assume That the New Zealand Inflation Rate Is Higher Than

Assume That the New Zealand Inflation Rate Is Higher Than