If US Inflation Is 2%, Japanese Inflation Is 1%, and Mexican

question 4

Multiple Choice

If U.S. inflation is 2%, Japanese inflation is 1%, and Mexican inflation is 3%, which of the following is true according to the theory of purchasing power parity?

• A)The dollar should rise by 1% versus the yen and fall by 1% versus the peso.
• B)The dollar should rise by 1% versus the peso and fall by 1% versus the yen.
• C)The dollar should rise by 1% versus both the peso and the yen.
• D)The dollar should fall by 1% versus both the peso and the yen.

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Definitions:

Slope

In statistics, the rate at which one variable changes over another, specifically in the context of linear regression.

Simple Linear Regression

This statistical technique involves modeling the correlation between a dependent variable and one independent variable through the application of a linear equation based on collected data.

Response Variable

The variable in an experiment or statistical model that changes in response to the manipulation of the explanatory variable.

Explanatory Variable

A variable in statistical modeling that is posited to cause or influence changes in a response variable; also known as an independent variable.