Assume that the U.S.has an 8 percent inflation rate while Mexico has a 4 percent inflation rate.According to relative PPP,the dollar would be expected to:

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According to the relative Purchasing Power Parity (PPP) theory, if the domestic inflation rate is higher than the foreign inflation rate, the domestic currency is expected to depreciate against the foreign currency. In this case, with the U.S. having an 8 percent inflation rate and Mexico having a 4 percent inflation rate, the U.S. dollar would be expected to depreciate by 4 percent against the Mexican peso.

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