What would you expect to occur if the rate of expected inflation in the United States is considerably lower than the expected inflation in Germany?

Question

Quizplus · Accepted Answer

If the rate of expected inflation in the United States is considerably lower than the expected inflation in Germany, it means that the purchasing power of the dollar is expected to increase relative to the euro. This, in turn, would make goods and services in the US relatively cheaper than those in Germany, leading to an increase in demand for dollars and a decrease in demand for euros. Therefore, the dollar should appreciate against the euro, which is represented by a decrease in the €/$ exchange rate.

What Would You Expect to Occur If the Rate of Expected