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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
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
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