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Question
Assume that the U.S. has a 2 percent inflation rate while Sweden has a 7 percent inflation rate. According to relative PPP, the dollar would be expected to:
a. Appreciate by 3.5 percent against the Swedish krona.
b. Depreciate by 3.5 percent against the Swedish krona.
c. Appreciate by 5 percent against the Swedish krona.
d. Depreciate by 5 percent against the Swedish krona.
Answer
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