Assume That U

question 41

Multiple Choice

Assume that U.S. annual inflation equals 8 percent, while Japanese annual inflation equals 5 percent. If purchasing power parity is used to forecast the future spot rate, the forecast would reflect an expectation of:

• A) appreciation of the yen's value over the next year.
• B) depreciation of the yen's value over the next year.
• C) no change in the yen's value over the next year.
• D) Information about interest rates is needed to answer this question.

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