Suppose that the current spot exchange rate of U.S. dollars for Russian rubles is $0.15/1ruble. The price of Russian-produced goods increases by 8 percent, and the U.S. price index increases by 3 percent.
-According to PPP, the 8 percent rise in the price of Russian goods relative to the 3 percent rise in the price of U.S. goods results in a(n)
A)depreciation of the Russian ruble by 5 percent.
B)depreciation of the Russian ruble by 6 percent.
C)appreciation of the Russian ruble by 5 percent.
D)appreciation of the Russian ruble by 6 percent.
E)depreciation of the Russian ruble by 7 percent.

Question

Quizplus · Accepted Answer

According to Purchasing Power Parity (PPP), if the price level in Russia increases by 8% and the price level in the U.S. increases by 3%, the Russian ruble should depreciate by the difference, which is 5%.

Suppose That the Current Spot Exchange Rate of U