If the expected inflation rates in Australia and the U.S. are 3% and 2% respectively, what would you expect the AU$/US$ exchange rate to change in one year according to Purchasing Power Parity Theory?

Select one:

a. AU$ is expected to depreciate relative to US$

b. AU$ is expected to appreciate relative to US$

c. AU$ is expected to be the same at current rate relative to US$

d. Both AU$ and US$ are expected to appreciate relative to other currencies

e. Both AU$ and US$ are expected to depreciate relative to other currencies