According to the purchasing-power-parity theory, the U.S.dollar maintains its purchasing-power parity if it depreciates by an amount equal to the excess of

Question

Quizplus · Accepted Answer

The purchasing-power-parity theory suggests that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. This means that the U.S. dollar maintains its purchasing power parity if it depreciates by an amount equal to the excess of U.S. inflation over foreign inflation, allowing for the same amount of goods to be purchased in both countries with the respective currencies.

According to the Purchasing-Power-Parity Theory, the U