Question

Assume you can currently exchange one U.S. dollar for one hundred Japanese yen. Also assume the inflation rate will be 2.5 percent annually in the U.S. and 2 percent in Japan. Given these assumptions, how many yen should you expect in exchange for one U.S. dollar next year?a. More than 100 b. Either 100 or more than 100 c. 100 d. Either 100 or less than 100 e. Less than 100

Answer 1

Answer:

e. Less than 100

Explanation:

Inflation: Inflation can be defined as rise in general price level of the goods and services in a country.

It can also be defined as reduction in value of money.

In this case Inflation in US( 2.5%) is higher than inflation in Japan (2%). So Japanese Yen is reducing less in value from US Dollar. So, now Dollar can buy less Yen than it could buy previously.