Purchasing power parity states that economic forces will push the actual market exchange rate toward that determined by purchasing power parity.

Question

Quizplus · Accepted Answer

Purchasing power parity theory suggests that there should be an equilibrium exchange rate based on the relative prices of different goods and services in different countries. Economic forces like inflation and changes in relative prices should ultimately push the actual exchange rate towards this equilibrium level. Therefore, the statement is true.

Purchasing Power Parity States That Economic Forces Will Push the Actual