Question: The rate of inflation in India from 2007 to 2011 was 8%. Over the same period, the inflation rate in the United States was 2.7%.
a. What is the implication of these inflation rates for the exchange rate between the dollar and the rupee? In particular, does the PPP condition imply a rise or a fall in the exchange rate? Explain your answer.
b. Is this an appreciation or a depreciation of the dollar? Is this an appreciation or a depreciation of the rupee?