If the U.S.inflation rate is 3 percent annually and the Japanese inflation rate is 1 percent annually,by what percent would the dollar price of the yen need to change according to purchasing power parity?
A) Appreciate by 2 percent
B) Appreciate by 1 percent
C) Depreciate by 2 percent
D) Appreciate by 3 percent
E) Depreciate by 1 percent.

Question

Quizplus · Accepted Answer

The dollar price of the yen would need to appreciate by 2 percent according to purchasing power parity. This is because the U.S. inflation rate is 3 percent annually and the Japanese inflation rate is 1 percent annually. As a result, the dollar will need to appreciate by 2 percent in order to maintain the same purchasing power in Japan.

If the USInflation Rate Is 3 Percent Annually and the Japanese Inflation