states that differential rates of inflation between two countries tend to be

States that differential rates of inflation between

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26) ________ states that differential rates of inflation between two countries tend to be offset over time by an equal but opposite change in the spot exchange rate. 26)
______ A) International Fisher Effect B) Fisher Effect C) Relative Purchasing Power Parity D) Absolute Purchasing Power Parity 27) One year ago the spot rate of US dollars for Canadian dollars was $1/C$1. Since that time the rate of inflation in the US has been 4% greater than that in Canada. Based on the theory of Relative PPP, the current spot exchange rate of US dollars for Canadian dollars should be approximately ________. 27) ______ 28) Two general conclusions can be made from the empirical tests of purchasing power parity (PPP): 28) ______ 29) A country's currency that strengthened relative to another country's currency by more than that justified by the differential in inflation is said to be ________ in terms of PPP. 29) ______
30) If we set the real effective exchange rate index between New Zealand and Australia equal to 100 in 2008,and today find that the Australian dollar has risen to a value of 112.6, then from a competitive perspective the $A is 30) ______ A) very competitive. B) overvalued. C) undervalued. D) There is not enough information to answer this question. 31) The government just released international exchange rate statistics and reported that the real effective exchange rate index for the Australian dollar vs the Japanese yen decreased from 105 last year to 95 currently and is expected to fall still further in the coming year. Other things equal Australian ________ to/from Japan think this is good news and Australian ________ to/from Japan think this is bad news. 31) ______

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