If a U.S. dollar will buy as much in Mexico as in the U.S., then purchasing power parity holds.

Question

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Purchasing power parity (PPP) is an economic theory that compares different countries' currencies through a "basket of goods" approach. If the same amount of goods or services can be purchased with a U.S. dollar in both the U.S. and Mexico, it means that the purchasing power parity holds between these two currencies.

If a US Dollar Will Buy as Much in Mexico as in as in the U.S