Author Question: Under PPP (and by the Fisher Effect), all else equal A) a rise in a country's expected inflation ... (Read 124 times)

2125004343 · **on:** Jun 30, 2018

Under PPP (and by the Fisher Effect), all else equal

A) a rise in a country's expected inflation rate will eventually cause a more-than proportional rise in the interest rate that deposits of its currency offer in order to accommodate for the higher inflation.
B) a fall in a country's expected inflation rate will eventually cause an equal rise in the interest rate that deposits of its currency offer.
C) a rise in a country's expected inflation rate will eventually cause an equal rise in the interest rate that deposits of its currency offer.
D) a rise in a country's expected inflation rate will eventually cause a less than proportional rise in the interest rate that deposits of its currency offer to accommodate the rise in expected inflation.
E) a fall in a country's expected inflation rate will eventually cause an inversely proportional rise in the interest rate that deposits of its currency offer to accommodate the rise in expected inflation.

Question 2

With perfect asset substitutability and capital mobility the domestic interest rate is equal to the foreign rate.

Indicate whether the statement is true or false