A foreign currency will, on average over the long term, appreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceedsthat of the United States if purchasing power parity holds.

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) suggests that currencies will adjust to offset differences in inflation rates between countries, leading to appreciation or depreciation to maintain equal purchasing power.

A Foreign Currency Will, on Average Over the Long Term