If the U.S. price level is increasing by 3 percent annually and the Japanese price level...
If the U.S. price level is increasing by 3 percent annually and the Japanese price level is increasing by 1 percent annually, then according to purchasing-power parity, by about what percent would the nominal exchange rate be changing?
| decreasing by 4 percent |
| decreasing by 2 percent |
| increasing by 4 percent |
| increasing by 2 percent |
Homework Answers
According to relative purchasing power parity, the percentage change in the exchange rate between two currency over a period of time will be equal to the percentage change in the price level.
nominal exchange rate be changing by = Price level change in US - price level change in Japan
=3%-1%
=2%
Hence nominal exchange rate be increasing by 2%.
Hence option fourth is the correct answer.
Fourth; increasing by 2 percent
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