The purchasing- power-parity theory predicts that if the U.S.inflation rate exceeds the Japanese inflation rate by 4 percent,the dollar's exchange value will appreciate by 4 percent against the yen.

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The purchasing-power-parity theory predicts that if the U.S. inflation rate exceeds the Japanese inflation rate, the dollar's exchange rate against the yen should decline, not appreciate. This is because the purchasing power of the dollar will decrease relative to the yen. Therefore, an increase in the U.S. inflation rate relative to Japan's inflation rate should lead to a decrease in the dollar's value against the yen, not an appreciation.

The Purchasing- Power-Parity Theory Predicts That If the U