Exam 8: Relationships Among Inflation, Interest Rates, and Exchange Rates

Given a home country and a foreign country, purchasing power parity (PPP) suggests that:

Assume that the New Zealand inflation rate is higher than the U.S. 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$).