If inflation in the United States rises relative to the inflation rate in Mexico,the dollar will __________ in terms of the peso and the peso will __________ in terms of the dollar.

Question

Quizplus · Accepted Answer

When inflation in the United States rises relative to the inflation rate in Mexico, the value of the dollar will decrease relative to the peso (depreciate) and the peso will increase in value relative to the dollar (appreciate). This is due to the fact that higher inflation erodes the purchasing power of a currency and causes it to lose value in comparison to another currency with lower inflation.

If Inflation in the United States Rises Relative to the Inflation