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

question 28

Multiple Choice

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.

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Definitions:

Money Rate

It usually refers to the interest rate, which is the cost of borrowing money, often set by central banks to influence economic activity.

Real Rate

The interest rate adjusted for inflation, representing the true cost of borrowing or the true return on investment.

Inflationary Premium

The part of the nominal interest rate that represents compensation to the lender for the expected loss of purchasing power due to inflation.

Money Rate

The interest rate or the cost of borrowing money, often influenced by central banks.