If a Nation Experiences 10% Inflation and Its Trading Partner

question 89

Multiple Choice

If a nation experiences 10% inflation and its trading partner does not, and if PPP holds, what happens to its real exchange rate?

• A) It depreciates by 10%.
• B) It appreciates by 10%.
• C) It does not change.
• D) It becomes negative.

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Definitions:

Decoupling

Refers to the strategy of creating independence between supply chain partners for improved flexibility and reduced dependency.

Inventory Management

The supervision of non-capitalized assets (inventory) and stock items, aiming to ensure the right products are in the right quantity for sale, at the right time.

Service Inventories

Assets held by a service business to support service delivery, including physical items, information, and capacities.

Cycle-Counting Personnel

Employees responsible for periodically counting inventory items to ensure accuracy without interrupting daily operations.