Suppose the GDP Deflator in the United States Is 125

question 196

Multiple Choice

Suppose the GDP deflator in the United States is 125 and the GDP deflator in Japan is 100.Also assume the United States has trade barriers on Japanese goods in the form of quotas.What does this imply about the exchange rate of yen per dollar under the theory of purchasing power parity in the long run?

• A)The exchange rate of yen per dollar will be equal to 1.25.
• B)The exchange rate of yen per dollar will be greater than 0.8.
• C)The exchange rate of yen per dollar will be equal to 0.8.
• D)The exchange rate of yen per dollar will be less than 0.8.

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Refreezing Phase

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