Assume that the U.S. inflation rate is higher than the New Zealand inflation rate. This will cause U.S. consumers to ____ their imports from New Zealand and New Zealand consumers to ____ their imports from the U.S. According to purchasing power parity (PPP), this will result in a(n) ____ of the New Zealand dollar (NZ$).

Question

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Higher U.S. inflation makes U.S. goods more expensive relative to New Zealand goods, leading U.S. consumers to increase imports from New Zealand. Conversely, New Zealand consumers will reduce imports from the U.S. due to relatively higher prices. According to PPP, this will lead to an appreciation of the New Zealand dollar.

Assume That the U