Macroeconomics 12th Edition by William Baumol,Alan Blinder

Exercise 3

During the first half of the 1980s, inflation in (West) Germany was consistently lower than that in the United States. What, then, does the purchasing-power parity theory predict should have happened to the exchange rate between the mark and the dollar between 1980 and 1985? (Look at Table 1 to see what actually happened.)