Assume that the U.S. faces an 8 percent inflation rate while no (0%) inflation exists in Japan. With floating exchange rates, we would expect the dollar to

Question

Quizplus · Accepted Answer

Inflation tends to decrease a currency's value because it reduces the purchasing power of that currency relative to others. Therefore, if the U.S. has a higher inflation rate than Japan, we would expect the dollar to depreciate against the yen.

Assume That the U