Relative purchasing power parity:

Question

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Relative purchasing power parity (PPP) relates differences in inflation rates to differences in exchange rates. It predicts that the exchange rate between two currencies should change in response to the difference in inflation rates between the two countries, with the currency of the country with higher inflation depreciating relative to the other currency. This theory is based on the idea that prices for identical goods and services should be the same across all countries in the absence of transportation costs and trade barriers.

Relative Purchasing Power Parity