According to purchasing power parity, a rise in inflation in the United States. relative to the rest of the world will lead to
A) a balance of payments surplus.
B) a balance of payments deficit.
C) an exchange rate appreciation.
D) an exchange rate depreciation.

Question

Quizplus · Accepted Answer

According to purchasing power parity, a rise in inflation in the United States relative to the rest of the world will lead to an exchange rate depreciation. This is because higher inflation in a country reduces the value of its currency relative to others, making its goods more expensive internationally and thus depreciating its currency.

According to Purchasing Power Parity, a Rise in Inflation in the United