Question: If a nation experiences 5% inflation while its trading partner experiences 1% inflation, and if PPP holds, what happens to its real exchange rate? a.

If a nation experiences 5% inflation while its trading partner experiences 1% inflation, and if PPP holds, what happens to its real exchange rate?

a. depreciates by 4%

b doesn't change

c. appreciates by 4%

d. no answer provided

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