Argentina experienced a period of extremely high inflation relative to its trading partners and Argentina's currency decreased in value.This is an example of purchasing power parity theory.

Question

Quizplus · Accepted Answer

According to the purchasing power parity theory, the exchange rate between two currencies should adjust to reflect the relative price levels of the two countries. Therefore, if a country experiences higher inflation than its trading partners, its currency should decrease in value to compensate for the decrease in purchasing power. This scenario describes Argentina's situation, making the statement true.

Argentina Experienced a Period of Extremely High Inflation Relative to Its