According to the purchasing power parity theory,a rise in the United States price level of 5 percent,and a rise in the Mexican price level of 6 percent cause

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According to the purchasing power parity theory, the exchange rate adjusts to offset differences in inflation rates between two countries. If the U.S. price level rises by 5% and the Mexican price level rises by 6%, the dollar should appreciate by the difference in inflation rates, which is 1%.

According to the Purchasing Power Parity Theory,a Rise in the United