The theory of PPP suggests that if one country's price level rises relative to another's,its currency should

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According to the theory of PPP, if one country's price level rises relative to another's, its currency should depreciate in order to restore the balance of trade. This is because the goods produced in the country with the higher price level will become relatively more expensive, causing a reduction in demand for those goods, while the goods produced in the country with the lower price level will become relatively cheaper, leading to an increase in demand for those goods. This change in demand will ultimately cause a change in the relative value of the two currencies, with the currency of the country with the higher price level depreciating and the currency of the country with the lower price level appreciating.

The Theory of PPP Suggests That If One Country's Price