If the rate of inflation is suddenly expected to be 8% higher than previously anticipated in the US than in the UK,the dollar should immediately depreciate by what percent with respect to the pound in order to keep prices equal in the US and the UK?

Question

Quizplus · Accepted Answer

According to the Purchasing Power Parity (PPP) theory, if the inflation rate in the US is expected to be 8% higher than in the UK, the dollar should depreciate by 8% relative to the pound to maintain price parity between the two countries.

If the Rate of Inflation Is Suddenly Expected to Be