Question

Assume that the U.S. inflation rate is lower than the New Zealand inflation rate. This will cause U.S. consumers to ____ their imports from New Zealand and New Zealand consumers to ____ their imports from the U.S. According to purchasing power parity (PPP), this will result in a(n) ____ of the New Zealand dollar (NZ$).

Answer 1

Hello there!

The aswers is: This will cause U.S. consumers to increase their imports from New Zealand and New Zealand consumers to reduce their imports from the U.S. According to purchasing power parity (PPP), whis will result in an appreciation of the New Zealand dollar (NZ$).

Explanation:

The inflation rate refers to an overall increase in the Customer Price Index (CPI), a weighted average for different goods. If this the U.S. inflation rate is lower than the New Zealand inflation rate, the U.S. will have the opportunity to import more products and/or goods as they rate means economic certainty, and New Zealand as being more affected, their imports will decrease.