If the U.S. inflation rate is positive and higher than the inflation rate in Aus

ID: 1226893 • Letter: I

Question

If the U.S. inflation rate is positive and higher than the inflation rate in Australia over the next few years then

the U.S. dollar will buy more goods in the U.S. and buy more Australian dollars in the market for foreign currency exchange.

the U.S. dollar will buy fewer goods in the U.S. and buy fewer Australian dollars in the market for foreign currency exchange.

A-

the U.S. dollar will buy more goods in the U.S. and buy more Australian dollars in the market for foreign currency exchange.

B-

the U.S. dollar will buy fewer goods in the U.S. and buy fewer Australian dollars in the market for foreign currency exchange.

Explanation / Answer

B is Correct, purchasing power will reduce and leads to depreciation of US Dollar against Australian as the australian dollar valuemust rise to compensate the purchasing power parity.

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If the U.S. inflation rate is positive and higher than the inflation rate in Aus

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