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Relative PPP

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Assume that the inflation rate in the U.S. and japan are 4% and 2% , respectively and that the current spot rate is $.0083333 per Japanese yen or 120 Japanesse yen per one U.S. dollar. How much should the U.S. dollar depreciate in order to maintain purchasing power parity?

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Solution Summary

Relative PPP is demonstrated.

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Relative PPP refers to rates of changes of price levels, that is, inflation rates. This ...

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