Assume that the New Zealand inflation rate is higher than the U.S. 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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Due to the higher inflation rate, the prices of goods and services in New Zealand will increase faster than in the U.S, making U.S. consumers reduce their imports from New Zealand. On the other hand, New Zealand consumers will import more from the U.S as U.S goods and services will appear cheaper. As a result, there will be an increase in demand for U.S. dollars and a decrease in demand for New Zealand dollars, leading to a depreciation of the NZ$.

Assume That the New Zealand Inflation Rate Is Higher Than