A rise in the domestic inflation rate and a simultaneous, yet bigger rise in the foreign inflation rate leads to depreciation of the foreign currency. depreciation of the domestic currency. no change in the exchange rate. the effect cannot be determined without knowing the exact changes in inflation rates
A rise in the domestic inflation rate and a simultaneous, yet bigger rise in the foreign inflation rate leads to depreciation of the foreign currency. depreciation of the domestic currency. no change in the exchange rate. the effect cannot be determined without knowing the exact changes in inflation rates
Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates
Section: Chapter Questions
Problem 1BIC
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Question
A rise in the domestic inflation rate and a simultaneous, yet bigger rise in the foreign inflation rate leads to
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depreciation of the domestic currency.
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no change in the exchange rate.
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the effect cannot be determined without knowing the exact changes in inflation rates
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