Which of the following is the theory relating the expected adjustment needed in the future spot exchange rate between countries to the inflation rate in each country?

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) is the economic theory that suggests that in the long run, the exchange rate between two currencies will adjust to reflect changes in the inflation rates of the two countries. This theory is based on the principle that in the absence of transportation and other transaction costs, identical goods should have the same price in different countries when prices are expressed in a common currency.

Which of the Following Is the Theory Relating the Expected