If the United States experiences an 8% inflation rate while Japan has zero inflation, what does the purchasing power parity theory predict will happen to the value of the US dollar relative to the Japanese yen in the long term?

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Increase in value by 8% compared to the yenDecrease in value by 8% compared to the yenStay unchanged against the yenFluctuate unpredictably against the yenAppreciate slightly against the yen

Explanation

According to purchasing power parity theory, a country with higher inflation will see its currency depreciate relative to a country with lower inflation. Since the US has an 8% inflation rate and Japan has none, the US dollar is expected to lose about 8% of its value against the yen over time.