If inflation in the United States averages more than inflation in Europe over a long period of time, we should expect:

Question

Quizplus · Accepted Answer

According to the purchasing power parity theory, if a country experiences higher inflation than its trading partners over a prolonged period, its currency will lose value relative to its partners' currency. Therefore, the dollar is expected to depreciate relative to the euro.

If Inflation in the United States Averages More Than Inflation