If the inflation rate in New Zealand were to rise relative to the inflation rate in Russia, which of the following correctly explains what would happen to the exchange rate for the New Zealand dollar in terms of Russian rubles?(1 point)

Question

Responses

The rubles-per-dollar exchange rate would fall since the inflation decreases the supply of dollars and increases the demand for dollars.
The rubles-per-dollar exchange rate would fall since the inflation decreases the supply of dollars and increases the demand for dollars.

The rubles-per-dollar exchange rate would rise since the inflation rate increases the supply of dollars and decreases the demand for dollars.
The rubles-per-dollar exchange rate would rise since the inflation rate increases the supply of dollars and decreases the demand for dollars.

The rubles-per-dollar exchange rate would fall since the inflation increases the supply of dollars and decreases the demand for dollars.
The rubles-per-dollar exchange rate would fall since the inflation increases the supply of dollars and decreases the demand for dollars.

The rubles-per-dollar exchange rate would rise since the inflation decreases the supply of dollars and increases the demand for dollars.

Answer 1

If the inflation rate in New Zealand were to rise relative to the inflation rate in Russia, the purchasing power of the New Zealand dollar would decrease relative to the Russian ruble. This is because higher inflation in New Zealand would generally lead to a depreciation of the New Zealand dollar.

As a result, the rubles-per-dollar exchange rate would rise (meaning it would take more rubles to buy one New Zealand dollar).

So, the correct response is:

The rubles-per-dollar exchange rate would rise since the inflation decreases the supply of dollars and increases the demand for dollars.