Suppose that prices in Brazil are rising faster than US prices, and the US is a very important trading partner of Brazil. (Brazil’s currency is called the real.) Suppose the dollar/real rate is floating. Required : What does relative purchasing power parity (RPPP) say should happen to the value of the real relative to the US dollar? Explain

Suppose that prices in Brazil are rising faster than US prices, and the US is a very important trading partner of Brazil. (Brazil’s currency is called the real.) Suppose the dollar/real rate is floating. Required : What does relative purchasing power parity (RPPP) say should happen to the value of the real relative to the US dollar? Explain

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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AE Ap Ap suggests that p where E is domestic price of one unit of foreign currency (e.g., Rs100 = $1) Q.23 Purchasing power parity which can be written as A. The home currency will appreciate if the current home inflation exceeds the current foreign inflation rate. B. The home currency will appreciate if the current foreign inflation rate exceeds the current domestic inflation rate. C. The home currency will depreciate if the current home interest rate exceeds the current Foreign interest rate D. The home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate. E. Both B and D are correct.
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