Assuming free trade between countries, exchange rates will change so that goods cost the same in all countries.This concept is known as the

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This concept is known as the purchasing power parity theory, which states that over the long run, exchange rates will adjust to make the cost of goods and services equal across countries. This is because in free trade, consumers will seek out the cheapest prices for goods, and investors will seek out the highest returns, leading to capital flows that will affect exchange rates. Ultimately, exchange rates will adjust to ensure that the same basket of goods costs the same amount in different countries.

Assuming Free Trade Between Countries, Exchange Rates Will Change So