According to the theory of purchasing-power parity, the demand curve is horizontal at the level of the real exchange rate that ensures parity of purchasing power at home and abroad.

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According to the theory of purchasing-power parity, the demand curve is horizontal at the level of the real exchange rate that ensures parity of purchasing power at home and abroad. This means that at the equilibrium level of the real exchange rate, the quantity of money demanded is equal to the quantity of money supplied, which results in purchasing power parity between countries.

According to the Theory of Purchasing-Power Parity, the Demand Curve