1.Describe what data pattern you observe from the figures. 2. Explain what you can conclude about the theory of PPP?purchasing power parity? from these two figures.

U.S. dollars $2.75 per pound Relative price sterling 2.50 level, Pus/Puk ($/E) 2.25 2.00 1.75 Exchange 1.50 A rate, Es/E 1.25 1975 1980 1985 1990 1995 2000 2005 2010 This figure shows 35 years of data for the U.S. and the U.K. from 1975 to 2010.Rate of +40% depreciation Relationship predicted by PPP 1975-2005 (% per year +30 versus U.S. $) +20 +10 +0 -10 -10 +0 +10 +20 +30 +40% Inflation differential 1975-2005 (% per year versus U.S.) This scatterplot shows the relationship between the rate of exchange rate depreciation against the U.S. dollar and the inflation differential against the United States over the long run, for a sample of 82 countries