Suppose That the Rate of Inflation in Japan Is 1

question 202

Multiple Choice

Suppose that the rate of inflation in Japan is 1 percent and the rate of inflation in the United States is 3 percent. If the real exchange rate remains constant, the value of the U.S. dollar relative to the yen must:

• A)rise by 2 percent.
• B)fall by 2 percent.
• C)rise by 4 percent.
• D)fall by 4 percent.

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