Assume an Equilibrium State in Which European Inflation and U

question 68

Multiple Choice

Assume an equilibrium state in which European inflation and U.S. inflation are both 4 percent. If U.S. inflation suddenly decreased to 2 percent, the euro will ____ against the dollar by approximately ____ percent, according to purchasing power parity.

• A)appreciate; 2
• B)depreciate; 2
• C)appreciate; 4
• D)depreciate; 4
• E)none of the above

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