Under PPP (And by the Fisher Effect), All Else Equal

question 26

Multiple Choice

Under PPP (and by the Fisher Effect) , all else equal

• A) a rise in a country's expected inflation rate will eventually cause a more-than proportional rise in the interest rate that deposits of its currency offer in order to accommodate for the higher inflation.
• B) a fall in a country's expected inflation rate will eventually cause an equal rise in the interest rate that deposits of its currency offer.
• C) a rise in a country's expected inflation rate will eventually cause an equal rise in the interest rate that deposits of its currency offer.
• D) a rise in a country's expected inflation rate will eventually cause a less than proportional rise in the interest rate that deposits of its currency offer to accommodate the rise in expected inflation.
• E) a fall in a country's expected inflation rate will eventually cause an inversely proportional rise in the interest rate that deposits of its currency offer to accommodate the rise in expected inflation.