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Suppose​ Russia's inflation rate is 100 percent over one year but the inflation rate in Switzerland is only 5 percent. According to relative​ PPP, over the year the Swiss​ franc's exchange rate against the Russian ruble ​(Upper E Subscript SFr divided by Upper R​) should

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Answer:

fall by 95 percent.

Explanation:

Since the inflation rate in Russia was 100%, the rubble lost 50% of its purchasing power. While the Swiss Franc only lost 2.5% of its purchasing power (inflation rate of 5%). The PPP between the Russian ruble and the Swiss Franc decreased to only = -2.5% / -50% = 0.05 or 5%. That means that the Russian ruble lost 100% - 5% = 95% of its purchasing power in just 1 year due to its high inflation.

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