This point may be made clearer by an example. Let us consider two countries, Westropa and the United States of the Hesperides, and let us assume for the sake of simplicity, and also because it may often correspond to the facts, that in both countries the price of exported goods moves in the same way as the price of other home-produced goods, but that the “equation of exchange” has moved in favour of the Hesperides so that a smaller number than before of units of Hesperidean products exchange for a given quantity of Westropean products. It follows from this that imported products in Westropa will rise in price more than commodities generally, whilst in the Hesperides they will rise less. Let us suppose that between 1913 and 1923 the Westropean index number of prices has risen from 100 to 155 and the Hesperidean index number from 100 to 160; that these index numbers are so constructed in each case that imported commodities constitute 20 per cent and home-produced commodities 80 per cent of the whole; and that the “equation of exchange” has moved 10 per cent in favour of the Hesperides, that is to say a given quantity of the goods exported by the Hesperides will buy 10 per cent more than before of the goods exported by Europe. The state of affairs is then as follows:[28] _Westropa_: Price index of imported commodities (_x_) 167. „ home-produced „ (_y_) 152. „ all „ 155. _Hesperides_: „ imported „ (_x´_) 148. „ home-produced „ (_y´_) 163. „ all „ 160. [Footnote 28: For 10_x_ = 11_y_ 8_y_ + 2_x_ = 1550 11_x´_ = 10_y´_ 8_y´_ + 2_x´_ = 1600. ] Thus it appears that the purchasing power parity of the Westropean currency in 1923 compared with 1913 is (160/155 = )103; whereas the rate of exchange, compared with the 1913 parity, is (163/167 = 148/152 = )97. If the worsening of Westropa’s equation of exchange with the Hesperides is permanent, then its purchasing power parity (on the 1913 basis) will also remain permanently above the equilibrium value of the market rate of exchange. A tendency of these two measures of the value of a country’s currency to move differently is, therefore, a highly interesting symptom. If the market rate of exchange shows a continuing tendency to stand below the purchasing power parity, we have, failing any other explanation, some reason to suspect a worsening of the “equation of exchange” as compared with the base year.