If the inflation rate in the United States is higher than that in Germany and productivity is growing at a slower rate in the United States than it is in Germany,in the long run,

Question

Quizplus · Accepted Answer

Higher inflation in the United States than in Germany will lower the purchasing power of the dollar, leading to a depreciation. At the same time, slower productivity growth will weaken the competitiveness of US products in the international market, which will also put downward pressure on the dollar. These factors combined should lead to a depreciation of the dollar relative to the euro.

If the Inflation Rate in the United States Is Higher