If the rate of inflation in the United States is 4% and the rate of inflation in the United Kingdom is 3%,relative purchasing power would predict that
A) the pound will appreciate relative to the dollar.
B) the pound will depreciate relative to the dollar.
C) both the dollar and the pound will depreciate due to inflation.
D) both the dollar and the pound will appreciate due to inflation.

Question

Quizplus · Accepted Answer

According to relative purchasing power parity, the currency of the country with the lower inflation rate (UK) should appreciate relative to the currency of the country with the higher inflation rate (US).

If the Rate of Inflation in the United States Is