Suppose inflation is higher in South Africa over the next few months than in foreign countries, and exchange rates are given in terms of how much foreign currency a dollar buys or how many foreign goods are equivalent in cost to one South Africa good. According to purchasing-power parity, which of the following should we expect to see? a) Both the real and nominal exchange rates appreciate. b) Both the real and nominal exchange rates depreciate. c) Only the nominal exchange rate depreciates. d) Only the real exchange rate appreciates.

Suppose inflation is higher in South Africa over the next few months than in foreign countries, and exchange rates are given in terms of how much foreign currency a dollar buys or how many foreign goods are equivalent in cost to one South Africa good. According to purchasing-power parity, which of the following should we expect to see? a) Both the real and nominal exchange rates appreciate. b) Both the real and nominal exchange rates depreciate. c) Only the nominal exchange rate depreciates. d) Only the real exchange rate appreciates.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 8P

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