Purchasing power parity suggests that the exchange rate between two currencies reflects differences in the overall price levels in the two countries.

Question

Quizplus · Accepted Answer

Purchasing power parity theory states that the exchange rate between two currencies should adjust over time to reflect changes in their relative purchasing power. In other words, it suggests that the exchange rate should reflect differences in the overall price levels, or the cost of a basket of goods and services, between the two countries. Hence, the statement is true.

Purchasing Power Parity Suggests That the Exchange Rate Between Two