Assume that the United States faces a 5 percent inflation rate while the U.K has a 7 percent inflation rate. According to the relative PPP, the dollar would be expected to:

a. appreciate by 2 percent against the British pound

b. depreciate by 2 percent against the British pound

c. appreciate by 12 percent against the British pound

d. depreciate by 12 percent against the British pound

And why?