Assume that the following are the predicted inflation rates in these countries for the year: 2% for the United States,3% for Canada;4% for Mexico,and 5% for Brazil. According to the purchasing power parity and everything else held constant,which of the following would we expect to happen?

Question

Quizplus · Accepted Answer

According to the purchasing power parity, the currency of a country with higher inflation rate would depreciate compared to that of a country with a lower inflation rate. Therefore, since Brazil has the highest inflation rate of 5%, we would expect its currency, the real, to depreciate against the U.S. dollar.

Assume That the Following Are the Predicted Inflation Rates in These